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First Trenton Indemnity Co. v. D'Agostini


July 20, 2009


On appeal from an interlocutory order of the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-775-07.

Per curiam.


Submitted May 27, 2009

Before Judges Wefing, Yannotti and LeWinn.

Plaintiff First Trenton Indemnity Company appeals, by leave granted, from an order entered by the trial court on November 12, 2008, compelling it to provide discovery, and an order entered on January 16, 2009, denying its motion for reconsideration. For the reasons that follow, we reverse.

On March 20, 2007, plaintiff filed an action alleging, among other things, that defendants Joseph D. D'Agostini, D.C., P.C. ("D'Agostini") and Allied Health Center, Inc. ("Allied") submitted bills for reimbursement under automobile insurance policies issued by plaintiff for services that had not been performed; were performed by unlicensed individuals; were rendered in a manner that did not conform to requirements of the New Jersey Board of Chiropractic Examiners; or were provided under conditions making them ineligible for payment.

Plaintiff alleged that, by submitting the aforementioned claims, D'Agostini, Allied and the other defendants violated the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30 (the "IFPA"). Plaintiff sought disgorgement of all monies previously paid to defendants; treble damages; attorneys fees; costs of suit and costs of investigation.

Defendants filed an answer denying plaintiff's allegations and a counterclaim in which they asserted claims against plaintiff for fraud; violations of the New Jersey Racketeer Influenced and Corrupt Organization Act, N.J.S.A. 2C:41-1 to -6.2 ("RICO"); violations of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 ("CFA"); violations of the IFPA; malicious prosecution; malicious use of process; malicious interference with economic advantage; and breach of the covenant of good faith and fair dealing.

In their counterclaim, defendants allege, among other things, that plaintiff owes them $75,000 and that their claims are subject to arbitration. Defendants assert that plaintiff is attempting to circumvent the arbitration process by wrongfully withholding payments and improperly initiating an investigation and litigation pursuant to the IFPA. Defendants further assert that plaintiff has committed fraud by refusing to pay their claims.

On June 12, 2007, defendants served upon plaintiff their first set of written interrogatories. On July 12, 2007, plaintiff filed a motion to dismiss defendants' counterclaim for failure to state a claim upon which relief may be granted.

The trial court considered plaintiff's motion on September 21, 2007, and on that date placed its decision on the record. The court entered an order dated October 4, 2007, which granted plaintiff's motion to dismiss defendants' claims under the IFPA, as well as their claims for malicious prosecution and malicious use of process, but denied plaintiff's motion to dismiss defendants' other claims.*fn1

Thereafter, plaintiff objected to defendants' discovery request on various grounds, including the attorney-client privilege, the work-product privilege and relevancy. Plaintiff also asserted that it would be unduly burdensome to reply to the requests and the cost of doing so would be extraordinary. Defendants filed a motion to compel plaintiff to respond to their discovery request.

On November 12, 2008, the court entered an order granting defendants' motion. The court ordered plaintiff to respond to defendants' interrogatories one, three, four, eleven and twelve. The court also required plaintiff to provide documents in response to defendants' notice to produce. The court provided no reasons for its order.

On December 2, 2008, plaintiff filed a motion for reconsideration of the November 12, 2008 order to the extent that it required plaintiff to respond to interrogatories eleven and twelve. Interrogatory eleven requested that plaintiff:

[l]ist the names, addresses and telephone numbers of any and all medical providers against whom an investigation has been commenced or conducted by Plaintiff or at its instigation since March 20, 1997; and in respect to any such investigation set forth the full caption of those matters which have resulted in litigation and provide the Complaint, any Orders to Show Cause, Plaintiff's Attorney's Certifications and Briefs, Protective Orders, Releases, Settlement Agreements, Stipulations of Dismissal and other settlement documents, copies of claims and SIU files and related communications with experts consulted by Plaintiff and the State of New Jersey.

Interrogatory twelve requested production of "[a]ny specific retainer agreement and/or billing statement rendered to Plaintiff by outside counsel for services rendered [with] respect to D'Agostini since March 20, 1997."

The trial court entered an order on January 16, 2009, denying plaintiff's motion. On the order, the court wrote that plaintiff's motion was "simply a rehash of [its] previous arguments [and] does not meet the standards [for reconsideration] set forth in [Rule] 4:49-2." Thereafter, plaintiff filed a motion for leave to appeal the court's November 12, 2008 and January 16, 2009 orders. On March 2, 2009, we entered an order granting the motion.

On appeal, plaintiff argues that the trial court erred by requiring a response to interrogatory eleven because the information sought in that interrogatory is irrelevant to defendants' claims. Plaintiff further contends that responding to the interrogatory would be "prohibitively burdensome" and "intrusive." In addition, plaintiff argues that the trial court erred by compelling a response to interrogatory twelve because the information sought is protected by the attorney-client and work-product privileges.

The standard of review in an appeal from a trial court's order on discovery is well-established. We defer to such orders except when the court has mistakenly exercised its discretion. Payton v. N.J. Tpk. Auth., 148 N.J. 524, 559 (1997) (citing Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 380 (1995); Garden State Cmty. Hosp. v. Watson, 191 N.J. Super. 225, 228 (App. Div. 1982), certif. denied, 94 N.J. 518 (1983)). We will, however, not defer to the court's order if it "is based on a mistaken understanding of the applicable law." Ibid. (citing Alk Assoc. v. Multimodal Applied Sys., Inc., 276 N.J. Super. 310, 314-15 (App. Div. 1994)).

"New Jersey's discovery rules are to be construed liberally in favor of broad pretrial discovery." Id. at 535 (citations omitted). Under our court rules, a party "may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action[.]" Ibid. (citing R. 4:10-2(a)). Relevant evidence is defined in N.J.R.E. 401 as "evidence having a tendency in reason to prove or disprove any fact of consequence to the determination of the action."

In their counterclaim, defendants allege that plaintiff fraudulently withheld payment of their claims. They assert that plaintiff represented that it would abide by the obligations it assumed under its auto insurance policies. Defendants allege that they and their patients relied upon that representation in providing services. Defendants further allege that they were damaged by their justifiable reliance on plaintiff's representation.

In our judgment, the information sought in interrogatory eleven has no bearing upon these allegations. Defendants' fraud claim is based on representations allegedly made to them, not to other providers. Therefore, information regarding plaintiff's investigations of other medical providers is not relevant to the issue of whether plaintiff defrauded defendants.

Similarly, the information sought in interrogatory eleven is not relevant to defendants' defense of plaintiff's claim under the IFPA. Plaintiff alleges, among other things, that defendants submitted claims that were not eligible for reimbursement. According to plaintiff, defendants violated the IFPA by making false statements on matters that are material to the claims. See Merin v. Maglaki, 126 N.J. 430, 435 (1992) (noting that under N.J.S.A. 17:33A-4(a)(1) a claimant is liable for any false statement made in support of a fraudulent insurance claim).

Facts related to plaintiff's investigations of other medical providers are not relevant to the defense that defendants are raising in response to plaintiff's claim. Defendants appear to be asserting that plaintiff violated the IFPA by the manner in which it investigated and endeavored to compromise defendants' claims, but facts regarding plaintiff's investigations of other medical providers have no bearing upon that assertion.

Furthermore, the information sought in interrogatory eleven is not relevant to defendants' RICO claim. In its interrogatories, plaintiff asked defendants to set forth the factual basis for their RICO claim. Defendants responded that: plaintiff has through its legal counsel, misrepresented the nature of the pre-suit investigation, has attempted to extort monies from the defendants in an improper manner while ostensibly conducting legitimate settlement discussions with defense counsel, has communicated defamatory and false information to a third party interpreter, either with the specific intent to influence or threaten a witness or with the knowledge that such information conveyed would be communicated to that witness in an attempt to influence or threaten that person. Additionally, plaintiff has misrepresented to the defendant chiropractic physician his right to be paid for initial examinations, claiming that those are bundled with the therapy performed and that payment of services under 97124 are inconsistent with payment for spinal manipulation on the same day and to the same anatomical site. Defendants also believe that the Doctor's specific patient base is being targeted based on national origin and legal status, a belief for which there are no specific facts known to the defendants other than the belligerent manner in which recorded statements of these persons have been pursued and the various excuses being used for non-payment where coverage is clear. Defendants contend that this pattern of improper behavior constitutes a violation of State and Federal "RICO" statutes and that all telephone calls and correspondence utilized in furtherance of the conspiracy constitute mail and wire fraud.

In our judgment, defendants' assertions fail to establish the necessary factual predicate to compel plaintiff to produce information regarding its investigations of other medical providers. Defendants assert that plaintiff's actions regarding their claims are part of a "pattern of improper behavior" but they have not presented any facts to support the assertion that plaintiff's investigations of other medical providers were in any way improper.

We note that, in responding to plaintiff's interrogatories, defendants stated that they will provide "[a] further factual basis" for their RICO claim after plaintiff has responded to the written discovery they have propounded. We are convinced, however, that defendants may not be permitted to embark on a wide-ranging inquiry into plaintiff's investigations of other medical providers unless they first present some facts showing that such investigations were improper. Without a factual predicate for their allegations of a "pattern of improper" actions, interrogatory eleven amounts to nothing but a fishing expedition.

In interrogatory eleven, defendants also sought the production of records that contain privileged and confidential information regarding health care provided to individuals, including the patients' names, addresses, social security numbers, medical conditions and treatment details. The trial court erred by ordering plaintiff to respond to interrogatory eleven without permitting defendants to redact the privileged and confidential information and without requiring defendants to make a "'compelling' showing of a particularized need for the information." Kinsella v. NYT Television, 382 N.J. Super. 102, 110-11 (App. Div. 2005) (quoting McClain v. Coll. Hosp., 99 N.J. 346, 362-64 (1985)).

Moreover, plaintiff maintains that certain of its investigations of other medical providers resulted in settlements that contain confidentiality agreements. The trial court erred by ordering plaintiff to respond to interrogatory eleven without requiring defendants to establish that the probative value the settlement agreements outweighs the harm that could result from their disclosure. Llerena v. J.B. Hanauer & Co., 368 N.J. Super. 256, 264 (Law Div. 2002). See also UMC/Stamford, Inc. v. Allianz Underwriters Ins. Co., 276 N.J. Super. 52, 71 (Law Div. 1994) (denying disclosure of confidential settlements between parties because confidentiality was a "key component" of the settlement negotiations and disclosure would deter other parties from settling their disputes).

In addition, the trial court erred by failing to give any weight to the fact that it would be unduly burdensome and extraordinarily costly for plaintiff to respond to interrogatory eleven. Plaintiff asserted that in the previous six years, it has concluded ninety investigations of medical providers, with lawsuits having been filed as a result of eight of those investigations.

Plaintiff further asserted that, to provide the information sought in interrogatory eleven, it would have to spend hundreds of thousands of dollars to copy and produce the files. Plaintiff also would have to review the documents to determine whether they contained privileged information, redact all records subject to the physician-patient privilege and create a privilege log.

The trial court appears to have dismissed plaintiff's concerns out of hand. It erred in doing so. For this reason, and the others discussed previously, we conclude that the court's order requiring plaintiff to respond to interrogatory eleven was a mistaken exercise of its discretion.

We also conclude that the trial court erred by ordering plaintiff to respond to interrogatory twelve. As stated previously, that interrogatory sought a copy of plaintiff's retainer agreement with its attorneys as well as counsels' bills for their work on this matter.

Because interrogatory twelve sought information subject to the attorney-client privilege, defendants had to show "'a legitimate need . . . to reach the evidence[.]'" Halbach v. Boyman, 369 N.J. Super. 323, 329 (App. Div. 2004) (quoting In re Kozlov, 79 N.J. 232, 243-44 (1979)). The trial court erred by failing to require defendants to establish that the information is relevant and material to their claims and whether the information could be secured from a less intrusive source. Ibid. (citing Kozlov, supra, 79 N.J. at 243-44).

Defendants maintain, however, that the information sought in interrogatory twelve is relevant to their RICO claim. They say that the retainer agreement may show that plaintiff's attorneys have a financial interest in participating as "co-conspirators" in the alleged racketeering scheme. We note that, as a result of the trial court's order of October 4, 2007, the defendants' RICO claim against plaintiff's attorneys was dismissed. There is, moreover, no evidence that counsel ever engaged in a "racketeering" scheme.

Defendants additionally argue that the information is required because plaintiff may seek counsel fees and costs on its claims under the IFPA. Defendants say that they are entitled to explore the reasonableness of any such application. The information may be relevant if plaintiff prevails on its claims under the IFPA and submits an application for counsel fees and costs, in which case plaintiff would be waiving any right to confidentiality of the information. Until plaintiff makes such an application, the request for this information is premature.

Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

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