.

_________________________________________

		)
		)
	UNITED STATES OF AMERICA,	)	CA 98-475 JJF
		)
	Plaintiff,	)
		)
	vs.	)
		)
	FEDERATION OF PHYSICIANS AND	)
	DENTISTS, INC.,	)
		)
	Defendant.	)
		)
	_________________________________________	)

   PLAINTIFF'S ANSWERING BRIEF IN OPPOSITION TO DEFENDANT'S
  MOTION FOR ENTRY OF DEFENDANT'S PROPOSED SCHEDULING ORDER

Dated: November 13, 1998

COUNSEL FOR PLAINTIFF UNITED STATES OF AMERICA RICHARD G. ANDREWS UNITED STATES ATTORNEY Virginia Gibson-Mason (DSB # 3699) Assistant United States Attorney 1201 Market Street, Suite 1100 Wilmington, DE 19801 Tel.: (302) 573-6277 Melvin A. Schwarz Special Counsel for Enforcement U.S. Department of Justice Antitrust Division 601 D Street, N.W. Washington, D.C. 20530 Tel.: (202) 305-1210

Steven Kramer Richard S. Martin Denise E. Biehn Michael D. Farber Attorneys U.S. Department of Justice Antitrust Division 325 Seventh Street, N.W. Washington, D.C. 20530 Tel.: (202) 307-0997

Page i.      

                    TABLE OF CONTENTS

TABLE OF CONTENTS..................................................................................................................i

TABLE OF CITATIONS.................................................................................................................ii

 I. Introduction..................................................................................................................................2

II. Defendant's Proposed Schedule Is Premised On Incorrect Assumptions .......................................3

   A. Defendant's Depiction of the Length of the Government's Pre-Complaint
      Investigation is Incorrect....................................................................................................3

   B. The Substance of the Department's Short, Pre-Complaint Investigation
      is Already Known to Defendant's Counsel..........................................................................4

   C. The Primary Issue In Dispute Defendant's Concerted Action....................................................6

III. Defendant's Proposed Order Setting Limits on Depositions Would Unjustly
   Hinder the United States' Ability to Prepare for Trial.....................................................................8

IV. Defendant's Proposal to Designate this Case as Complex Should Be Rejected..............................11

   A. Type of Action.......................................................................................................................12

   B. Number of Parties..................................................................................................................13

   C. Nature and Number of Issues Pled.........................................................................................13

   D. Nature of Factual Issues.........................................................................................................13

   E. Nature and Extent of Discovery ..............................................................................................13

   F. Need for Experts....................................................................................................................14

   G. Nature and Extent of Pre-Trial Issues or Other Special Difficulties...........................................14

 V. Conclusion..................................................................................................................................14
                          TABLE OF CITATIONS
Cases
DuPont Merck Pharmaceutical Co. v. Bristol-Myers Squibb Co., 894 F. Supp. 804, 809
     (D. Del. 1995), aff'd on other grounds, 62 F.3d 1397 (Fed. Cir. 1995) .........................................9
F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447 (1986) ..........................................................7
Federal Trade Comm'n. v. Superior Court Trial Lawyers Ass'n., 493 U.S. 411 (1990)........................7
In re ML-LEE ACQUISITION FUND II, L.P., 859 F. Supp. 765, 768 (D. Del. 1994)...................10
National Society of Professional Engineers v. United States, 435 U.S. 679 (1978)...............................8
Scovill v. Sunbeam Corp., 61 F.R.D. 598 (D. Del. 1973)....................................................................9
United States v. Diamond Industries, Inc., 145 F.R.D. 48 (D. Del. 1992).....................................12, 14
United States v. Witmer, 835 F. Supp. 201 (M.D. Pa. 1993), vacated on other grounds,
     835 F. Supp. 208, aff'd, 30 F.3d 1489 (3d Cir. 1994) .............................................................4, 10
Vogel v. American Soc'y of Appraisers, 744 F.2d 598 (7^th Cir. 1984)..............................................12

Statutes
15 U.S.C.§§ 1311-1314 ....................................................................................................................3
28 U.S.C. § 473(a)(2)(B)(i) and (ii)...................................................................................................12

Rules
D. Del. LR 16.1(a).......................................................................................................................11, 12
Fed. R. Civ. P. 26(b)(2).......................................................................................................................9

Page iii      

Fed. R. Civ. P. 26(a)(1)(B)....................................................................................................................5

Other Authorities
Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy
     in Health Care, 4 Trade Reg. Rep. (CCH) ¶ 13,153.....................................................................6, 7

.

Page 2.      

I. Introduction

   The United States submits this answering brief in opposition to defendant Federation of
Physicians and Dentists' (the "Federation's") motion for entry of its proposed discovery schedule.
(D.I. 18). The United States strenuously opposes defendant's extended schedule because (1) there is simply no need to take anywhere close to 18 months to prepare this case for trial, and (2)
the public will be disserved by such an unnecessary delay in resolution of a case that affects the
availability and cost of health care for the citizens of Delaware and the American public generally.
The only material factual dispute in this case is whether defendant and nearly all orthopedists in
Delaware, who joined defendant, acted in concert to avoid a reduction in their fees by collectively
boycotting Blue Cross Blue Shield of Delaware ("Blue Cross"). The evidence cited in the
complaint makes that concerted action plain, and the indisputable fact is that defendant and its
members--nearly all of whom defendant's counsel represents--presently have (and have had) that
information in their possession. The only other substantive discovery that defendant claims a need
for is from Blue Cross; that can be accomplished within a few months.

   Defendant's proposed pretrial order is based almost entirely on its contention that the
United States has been investigating the activities that are the subject of this case since November
1997. That contention is both false and irrelevant. In reality, the Department of Justice's (the
"Department's") investigative discovery of defendant's and its members' activities in Delaware
took place over only about four months--not ten months, as asserted by defendant. Moreover,
virtually all of that four months of discovery focused on obtaining documents and testimony from
the very orthopedists and Federation management whom defense counsel represents.

Page 3.      

   Defendant's proposed discovery schedule is not only based on a false premise, but it is
hopelessly inconsistent. The defendant seeks to limit depositions to 10 per side while claiming
that the defendant needs 18 months to accomplish this task. If a 10-deposition limit were
appropriate (which it is not), these could easily be completed in 18 weeks, not 18 months. There
is simply no valid reason for defendant's requested certification of "complexity" and the
protracted delay defendant proposes.

II.   Defendant's Proposed Schedule is Premised on Incorrect Assumptions

   A.        Investigation is Incorrect

   Defendant's claimed need for an August 2000 trial date is premised on the notion that it
should have a period of time for discovery equal to the amount of time that the United States took
to investigate this case. In support of this argument, defendant wrongly asserts that, "[S]ince
November 1997, the Government has been issuing document requests and taking depositions to
gather information and prepare its case against the FPD." Defendant's Brief (D.I. 19) at 2. It is
true that the United States has investigated the Federation since November 1997. However, the
investigation that commenced in November, 1997, focused on the activities of the Federation and
its members in New Haven, Connecticut--not Delaware. Indeed, the United States was unaware
of defendant's anticompetitive activities in Delaware until late February 1998.

   Issuance of civil investigative demands ("CIDs"), as authorized by the Antitrust Civil
Process Act, 15 U.S.C. §§ 1311-1314, to obtain information about the activities underlying this
.

Page 4.      

case, first occurred on February 25, 1998.¹ Initial production of documents by most parties,
including the vast majority of Delaware Federation members represented by defense counsel,
occurred on March 17, 1998. All investigative discovery concluded when the final two
investigative depositions were completed on June 9, 1998.

   The fact is that the Department investigated those activities for a little over four months,
from the end of February, 1998, until early June 1998.² Therefore, even accepting defendant's
premise that it needs discovery of what it already knows, the United States' proposed pretrial
schedule provides defendant with even more time than the Department took to obtain its pre-
complaint discovery.

   B.         Known to Defendant's Counsel

   Not only was the Department's pre-complaint investigation far shorter than defendant
asserts, but the vast majority of the information obtained by the Department during its brief
investigation is already in defense counsel's files. Defendant's counsel represents 40 of the 45
Delaware orthopedic surgeons to whom CIDs for documents were issued in late February 1998.
All but 326 pages of documents produced by physicians to the Department during its investigation
have been produced by physicians represented by defendant's counsel. During its investigation,
the Department also obtained 1,154 pages of documents from the four major health insurers
.

Page 5.      

operating in Delaware. Had defendant agreed to a protective order in a timely fashion,³ the
United States would have voluntarily produced, weeks ago, all of the documents obtained thus
far.

   During the spring of 1998, the Department took investigative depositions of 18 persons.
With one exception, all were defendant's employees or representatives, defendant's members, or
the office managers of defendant's members. Defendant's counsel represented 15 of those
deposed, attended the depositions of 14 of them, took extensive notes during the depositions
attended, and accompanied almost all persons deposed when they reviewed their transcripts.
Pursuant to Rule 26(a)(1)(B), the United States has since voluntarily provided to defendant's
counsel transcripts of those 15 investigative depositions.⁴

Page 6.      

   C.  The Primary Issue In Dispute Is Defendant's Concerted Action

   This case hinges on whether plaintiff can prove that defendant and its members acted in
concert in opposing Blue Cross's offer of reduced fees for orthopedic services. Defendant's only
suggestions to the contrary (in its brief in support of its discovery schedule (D.I. 19)) are its
allusions to purported defenses requiring discovery of: (1) the United States' policies on
unionization of physicians and antitrust enforcement in health care, including "the facts underlying
the Government's promulgation, interpretation, and enforcement of the [third-party messenger]
system set forth in the [Department of Justice and Federal Trade Commission Statements of
Antitrust Enforcement Policy in Health Care, 4 Trade Reg. Rep. (CCH) ¶ 13,153 at 20,831
(August 28, 1996)]" (the "Policy Statements"), Defendant's Brief at 9-10; and (2) "issues relating
to the structure, vagaries, and dynamics of the health care market and the conduct of health care
providers and insurers." Defendant's Brief at 10.

   These purported discovery needs do not conceivably justify defendant's proposed
18-month discovery schedule. The only issue is whether defendant and its members acted jointly
to boycott Blue Cross's efforts to lower fees it paid to Delaware orthopedists. The very Policy
Statements on which defendant seeks to rely emphasize that this is a question of fact in each case:

        The key issue in any messenger model arrangement is whether the
   arrangement creates or facilitates an agreement among competitors on prices or
   price-related terms. Determining whether there is such an agreement is a question
   of fact in each case.

Page 7.      

Policy Statements at 20,831. To assist in evaluating this question, the Policy Statements set forth
a framework for analysis to determine

   whether the agent facilitates collective decision-making by network providers,
   rather than independent, unilateral, decisions. In particular, the Agencies will
   examine whether the agent coordinates the providers' responses to a particular
   proposal, disseminates to network providers the views or intentions of other
   network providers as to the proposal, expresses an opinion on the terms offered,
   collectively negotiates for the providers . . . . If the agent engages in such
   activities, the arrangement may amount to a per se illegal price-fixing agreement.

Id. (footnote omitted). SeeFederal Trade Comm'n. v. Superior Court Trial Lawyers Ass'n., 493
U.S. 411, 432-36 (1990). Thus, the Policy Statements demonstrate that the central issue in this
case is whether the activities of the defendant and its members amount to concerted action, which
they in no sense condone. The course of drafting of the Policy Statements, which in any event
cannot--and do not purport to--displace this Court's application of Section 1 of the Sherman Act,
is patently immaterial and irrelevant to this issue.⁵

   Similarly, defendant's asserted need for broad discovery "relating to the structure,
vagaries, and dynamics of the health care market and the conduct of health care providers and
insurers" is a transparent effort to justify the dilatory discovery schedule it seeks. The primary
issue in dispute in this case is whether defendant and its Delaware members engaged in concerted
action; defendant's claimed need to engage in the quoted, far ranging discovery is simply a red
herring. The nature of competition in these markets has no bearing on the [il]legality of
defendant's actions. SeeId.; seealso, F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447

Page 8.      

(1986) (rejecting as a matter of law that Federation's efforts to assert "quality of care" defenses to
its members concerted refusal to provide patient x-rays to insurers); National Society of
Professional Engineers v. United States, 435 U.S. 679 (1978) (rejecting alleged justifications for
concerted, anticompetitive actions which were not related to the promotion of competition in the
particular market at issue).

III.      United States' Ability to Prepare for Trial

   While claiming that this case is complex, defendant nevertheless proposes that the Court
establish a presumptive limit of ten depositions per side. In support of this proposal, defendant
argues that, because the Department took CID depositions during its investigation, allowing
plaintiff more than ten depositions in this case would be "unreasonably cumulative and
duplicative." Defendant's Brief at 14. The defendant also proposes, "for similar reasons," that
the Court issue an order prohibiting plaintiff from "deposing the [defendant] or [defendant's]
members and associated persons that it previously deposed through the issuance of CIDs." Id. at
15. Neither of defendant's proposed limitations is suited to this case.

   In conducting its investigation of whether the Federation and its Delaware orthopedic
surgeon members had violated the antitrust laws, the Department deposed 18 individuals,
pursuant to CIDs, between March 14, 1998 and May 20, 1998. The information obtained during
its investigation not only enabled the United States to allege with great specificity the misdeeds of
defendant in the complaint, but will doubtless also be the source of evidence at trial. But the
investigative depositions are no substitute for post-complaint depositions in preparation for trial.

Page 9.      

   The plaintiff is certainly not seeking "unreasonably cumulative or duplicative" discovery
by seeking to preserve the ability to take, in preparation for trial, more than ten depositions, or to
depose individuals who have been deposed pursuant to CIDs during the Department's
investigation. The defendant simply has no basis for asserting otherwise.⁶ There is no dispute
among the parties that at least 50-60 individuals, including Federation representatives, Federation
members, and office managers that work with Federation members likely have information related
to disputed issues in this case.⁷ The United States does not anticipate that it will need to take the
depositions of all of these individuals, but the number of individuals involved in the concerted
action and their varying involvement in and recollections of specific activities compel the United
States to preserve the ability to take more than ten depositions in order to adequately prepare for
trial--a trial for which defendant has reserved the right to present a witness list of up to 20

Page 10.      

persons, while rejecting United States' proposal for exchanges of witness lists during discovery to
help focus discovery.

   The United States must also retain the ability to depose some of the individuals that it
initially deposed pursuant to CID during the course of its investigation to ensure "full, fair, and
complete discovery," In re ML-LEE ACQUISITION FUND II, L.P., 859 F. Supp. 765, 768 (D.
Del. 1994), in this action. Depositions taken in preparation for trial are different in nature and
purpose than those taken pursuant to CIDs in the course of this investigation. In the investigation
of the Federation and its Delaware members, the Department used CID investigative depositions
to gather as much information as quickly and efficiently as possible to determine whether a
violation had occurred during a time when the possible need for expedited proceedings and
preliminary injunctive relief loomed large.⁸ In this situation, many of the investigative depositions
were taken without any systematic review of all potentially relevant documents and without
knowledge of defendant's factual defenses now reflected in its Amended Answer.

   The United States will use post-complaint depositions of some persons who were deposed
during the investigation--several of whom are central figures in the conspiracy--to prepare the
case adequately for trial. Among other functions, case depositions will enable plaintiff to:
(1) gather additional facts following a systematic analysis of all relevant documents (including
additional documents from defendant and non-parties) and defendant's claims, (2) establish
foundations for the admission of evidence, (3) test defendant's now-asserted defenses, and (4) pin

Page 11.      

down potential witnesses on points that may be used by the United States in cross-examination.
For these basic reasons, the Court should reject defendant's proposed limitations on depositions.

   Moreover, any ruling limiting plaintiff's ability to take case depositions of those deposed
during the investigation would have the perverse future effects of (1) unduly protracting
investigative depositions to assure fuller coverage of the issues, at the cost of efficiency and
burden on both the Department and the witness; and (2) forcing the Department not to depose,
during an investigation, most of those persons who appear to be most centrally involved to avoid
being precluded from taking their depositions, after their defenses are fully asserted, in a resulting
federal court litigation.

IV.  Defendant's Proposal to Designate this Case as Complex Should Be Rejected

   The purpose of defendant's freshly minted view of the supposed "complexity" of this case
is to rationalize its extraordinarily lengthy discovery schedule, leading to trial commencing in
August 2000.⁹ However, as defendant knows, unless this case is certified as "complex,"
defendant's discovery schedule will not comply with the requirements of D. Del. LR 16.2(c) and
the Civil Justice Reform Act ("CJRA").¹⁰SeeUnited States v. Diamond Industries, Inc., 145
F.R.D. 48, 49 (D. Del. 1992).

   When a party seeks a determination of "complexity," the district court "is obligated to
engage in an analysis of certain considerations which are set forth in the Local Rules for the
District of Delaware." Id., citing D. Del. LR 16.1(a)(1) and (2). "[T]he Court must respond to
the dictates of the CJRA and only determine a case complex when such a finding is clearly
warranted on the factors enumerated in Local Rule 16.1(a)(2)." United States v. Diamond
Industries, Inc., 145 F.R.D. at 50. A brief application of these factors to this case shows
defendant's request for a certification of complexity falls far short of meeting this standard and

Page 12.      

Page 13.      

Page 14.      

this case past the Court's standard schedule and there are many reasons to expedite this matter of
substantial importance to consumers of physicians' services in Delaware and elsewhere. For all
the reasons described above, the United States requests that the Court reject defendant's
proposed scheduling order and enter the United States' proposed scheduling order to govern
pretrial activities in this case.

Dated: November 13, 1998 COUNSEL FOR PLAINTIFF UNITED STATES OF AMERICA RICHARD G. ANDREWS UNITED STATES ATTORNEY                     /s/                   By: Virginia Gibson-Mason (DSB # 3699)    Assistant United States Attorney 1201 Market Street, Suite 1100 Wilmington, DE 19801 Tel.: (302)573-6277 Facsimile: (302)573-6220                     /s/                   Melvin A. Schwarz Special Counsel for Enforcement U.S. Department of Justice Antitrust Division 601 D Street, N.W. Washington, D.C. 20530 Tel.: (202) 305-1210 Facsimile: (202) 514-1629

/s/                   Steven Kramer Richard S. Martin Denise E. Biehn Michael D. Farber Attorneys U.S. Department of Justice Antitrust Division 325 Seventh Street, N.W. Washington, D.C. 20530 Tel.: (202) 307-0997 Facsimile: (202) 514-1517

FOOTNOTES

¹ A CID is a form of administrative subpoena, that is used as "a pre-complaint discovery tool" and is "made available by statute in several different contexts," including antitrust investigations. United States v. Witmer, 835 F. Supp. 201, 203-05 (M.D. Pa. 1993), vacated on other grounds, 835 F. Supp. 208, aff'd, 30 F.3d 1489 (3^rd Cir. 1994).

² During this four-month period, defense counsel delayed, for a month, the investigative deposition of the Federation's Executive Director, Jack Seddon.

³ Defendant's dilatory responses to plaintiff's attempts to agree on a Rule 26(c)(7) umbrella protective order are instructive because they appear symptomatic of an overall lackadaisical approach to this case that is embodied in defendant's proposed 18-month discovery schedule. The United States sent defendant's counsel a draft Rule 26(c)(7) protective order on September 15, 1998, in part, to promote expedited disclosure to defendant of the limited amount of information produced by some non-parties during the investigation. At the October 1 Rule 26(f) conference among counsel, defense counsel said he had found nothing disagreeable in the proposed protective order, but was awaiting his client's approval. After additional requests from the United States for a formal response to the proposed protective order, and after finally agreeing in principle to the United States' proposed draft on the morning of October 14, on the afternoon of October 14, defendant's counsel raised "concerns" about the proposed order that precluded filing the order for the Court's consideration along with the Proposed Discovery Plan. (D.I. 13). Defendant's counsel finally conveyed its proposed revisions to the United States on October 21, but was unavailable to confer until October 28. On October 29, the United States sent its counterproposal to defendant, but it has not heard further from defense counsel on whether the parties have an agreement. Defendant's inaction continues to delay disclosure to defendant, pursuant to Rule 26(a)(1)(B), of documents obtained during the government's investigation from third parties that are not represented by defense counsel.

⁴ Two of the three depositions taken of persons not represented by defendant's counsel are depositions of defendant's members and together total 250 pages of testimony. The transcript of the third deposition--the only one taken of someone unconnected with defendant--totals 15 pages of testimony. As with the documents of the few third parties not represented by defense counsel, the United States will voluntarily provide defendant the three transcripts presently not in the possession of defense counsel after defendant agrees to a protective order and the deponents have had a reasonable opportunity to designate confidential information.

⁵ Moreover, the Department has no policy concerning the unionization of physicians and the Department's antitrust enforcement history in the health care industry is a matter of public record. Therefore, even if there were any relevance to such information (and there is none), there is no need for discovery to determine the Department's actions in this area.

⁶ The plaintiff has not yet served on defendant any notices of depositions of any of its members or representatives. It is premature, therefore, to argue that plaintiff will seek "unreasonably cumulative or duplicative" discovery. Addressing defendant's proposed limitations on depositions at this point in the litigation is premature because the Court "has not been presented with legal issues grounded in established facts that require a judicial decision in order to settle a dispute." DuPont Merck Pharmaceutical Co. v. Bristol-Myers Squibb Co., 894 F. Supp. 804, 809 (D. Del. 1995), aff'd on other grounds, 62 F.3d 1397 (Fed. Cir. 1995); see also Scovill v. Sunbeam Corp., 61 F.R.D. 598, 603 (D. Del. 1973) (refusing to enter a protective order under Fed. R. Civ. P. 26(c) preventing deposition on the grounds that it would be premature to do so). The defendant can move for a protective order under Fed. R. Civ. P. 26(c) if it believes that the particular discovery sought by plaintiff is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive. See Fed. R. Civ. P. 26(b)(2).

⁷ Defendant's Initial Rule 26(a)(1) Disclosures list among those likely to have discoverable information: all Delaware members of the [Federation] and their office managers." Defendant's Initial Rule 26(a)(1) Disclosures at 2. These groups alone total over 50 persons, aside from defendant's own employees and representatives.

⁸ This type of investigative activity is what Congress sought to promote in authorizing the issuance of CIDs. See Witmer, 835 F. Supp. at 206 (stating, in analyzing the CID authorization contained in the False Claims Act, that "Congress intended the CID to be a tool that would allow the Government to gather information about potential fraud against the Government quickly and efficiently.").

⁹ The defendant, in its brief supporting its proposed discovery schedule, for the first time seeks to certify this case as "complex" pursuant to D. Del. LR 16.1(a). Defendant opted not to seek such a certification in either its answer (D.I. 7), filed on September 22, 1998; at the Rule 26(f) conference of counsel held on October 1, 1998; or in its amended answer (D.I. 11), filed on October 13, 1998. In fact, it was not until well after the Rule 26(f) conference – at which defendant proposed its discovery schedule – that defendant first raised the "complexity" of the case as a reason for its proposed schedule.

¹⁰ The CJRA requires district courts to schedule cases for trial "within eighteen months after the filing of the complaint, unless a judicial officer certifies that (i) the demands of the case and its complexity make such a trial date incompatible with serving the ends of justice; or (ii) the trial cannot reasonably be held within such time because of the complexity of the case or the number or complexity of pending criminal cases." 28 U.S.C. § 473(a)(2)(B)(i) and (ii).