Opinion
No. 19-cv-11038-NMG
2020-09-11
ALLSCRIPTS HEALTHCARE, LLC, Plaintiff, v. DR/DECISION RESOURCES, LLC d/b/a Decision Resources Group, Defendant.
ORDER
Report and Recommendation is accepted and adopted.
REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION FOR RULE 11 SANCTIONS
DONALD L. CABELL, U.S.M.J.
I. INTRODUCTION
Plaintiff Allscripts Healthcare, LLC ("Allscripts") has brought suit against defendant DR/Decision Resources, LLC, d/b/a Decision Resources Group ("DRG") for allegedly violating the terms of an agreement licensing DRG to use Allscripts’ data. DRG contends that the suit is frivolous and has been brought in bad faith and moves pursuant to Federal Rule of Civil Procedure 11 to sanction Allscripts and its attorneys, by dismissing the lawsuit with prejudice and ordering Allscripts to pay DRG's expenses. (D. 67). The matter has been referred to this court for a report and recommendation. For the reasons explained below, I recommend that the motion be denied.
II. RELEVANT BACKGROUND
Allscripts is a health information technology company. It collects, aggregates, and de-identifies sensitive patient-level data from a network of medical practices in compliance with security and privacy laws and regulations, including the Health Information Portability and Accountability Act (HIPAA). Allscripts then, among other things, licenses this data to third parties, provided that the patient level data is protected to standards that are certified by an independent statistician. (D. 1 ¶ 1, 10).
DRG conducts market research studies for its clients. In 2014 the two companies signed a Master Data license Services Agreement (the "Agreement"). The Agreement as amended granted DRG a non-exclusive license to use Allscripts’ patient-level to create analyses, reports, and products ("Client Products") and to commercially distribute such Client Products to its customers. (D. 1 ¶ 15, 16; D. 67, Ex. 1 at 5).
In May 2019 Allscripts initiated the present lawsuit suit after contending that DRG violated the Agreement, an allegation DRG denies. The core issue underlying the suit is whether the Agreement allows DRG to simply repackage Allscripts’ patient level data with other data and resell it, and whether DRG has in any event made appropriate use of the data. Allscripts argues that the Agreement incorporates by reference a Statistician's Certification which states that "[DRG] will not provide patient level Allscripts’ data to a client, either alone or in combination with other sources." (D. 74, Ex. 2, § 22). Allscripts argues that it in fact rejected this very notion during the parties’ negotiations leading to the signing of the Agreement.
DRG responded by moving to preliminarily enjoin Allscripts from discontinuing the flow of patient level data. (D. 12). Allscripts in turn cross-moved to enjoin DRG from selling patient level data to its clients. (D. 25). On July 3, 2019, the court subsequently denied both motions and discovery ensued. (D. 41).
Approximately four months later, on November 6, 2019, and during discovery, DRG through counsel sent Allscripts’ counsel a letter indicating that it would file a motion for Rule 11 sanctions if Allscripts did not withdraw its complaint within the next 21 days. DRG also included a draft of the memorandum of law it intended to submit in support of the threatened motion. (D. 67, Ex. 6). DRG filed the instant motion when Allscripts declined to withdraw its complaint.
III. LEGAL STANDARD
Under Rule 11 an attorney certifies that, to the best of his knowledge, and after conducting an inquiry reasonable under the circumstances, any written submission to the court,
(1) is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.
The Rule 11 certification means that there is (or likely will be) "evidentiary support" for the allegation, not that the party will prevail with respect to its contention regarding the fact. See Fed. R. Civ. P. Rule 11, advisory notes. That summary judgment is subsequently rendered against a party does not necessarily mean, for purposes of this certification, that it had no evidentiary support for its position. Id. If a party has evidence with respect to a contention that would suffice to defeat a motion for summary judgment based thereon, the party would have sufficient "evidentiary support" for purposes of Rule 11. Id.
The appropriate standard for measuring whether a party and their attorney is in compliance with Rule 11 is an objective standard of reasonableness under the circumstances. Cruz v. Savage , 896 F.2d 626, 631 (1st Cir. 1990). Judges should not employ the wisdom of hindsight but "should consider the reasonableness of the attorney's conduct at the time the attorney acted." Id. at 633. As the First Circuit has described, "at least ‘culpable careless[ness]’ is required before a violation of the Rule can be found." Citibank Global Mkts., Inc., v. Santana , 573 F.3d 17, 32 (1st Cir. 2009) (alteration in original) (quoting Roger Edwards LLC v. Fiddes & Son, Ltd. , 437 F.3d 140, 142 (1st Cir. 2006) ).
As such, the imposition of Rule 11 sanctions is a remedy that should not be employed lightly. Navarro-Ayala v. Nunez , 968 F.2d 1421, 1426-27 (1st Cir. 1992) ("The power to impose sanctions is a potent weapon and should, therefore, be deployed in a balanced manner ... [P]roportionality is often a proxy for appropriateness."); Augustyniak Ins. Group, Inc. v. Astonish Results, L.P. , C.A. No. 11-464S, 2013 WL 998770 at *7, 2013 U.S. Dist. LEXIS 36451 at *26 (D.R.I. 2013) (" Rule 11 sanctions are reserved for clear cases of abuse."). See Am. Modern Home Ins. Co. v. United Yacht Sales , No. CV 4:16-40127-TSH, 2017 WL 5760914, at *7 (D. Mass. Sept. 7, 2017) (recommending denial of Rule 11 motion where movant targeted the ultimate merits of other party's claim) adopted by Am. Modern Home Ins. Co. v. United Yacht Sales , No. CV 4:16-40127-TSH, D. 42 (electronic order).
IV. ANALYSIS
As noted above, the lawsuit is over the scope of the Agreement and, as the presiding judge stated in denying the motions for preliminary injunctions, "whether 1) the Agreement incorporates the terms of the [Statistician's] Certification and 2) the defendant adequately transforms the patient-level data such that it is in compliance with the Agreement." (D. 41 at 9-10). Allscripts argues that the Agreement does incorporate the certification, which provides that "[DRG] will not provide patient level Allscripts’ data to a client, either alone or in combination with other sources." (D. 74, Ex. 2, § 22). Allscripts argues that the plain language of the Agreement allows DRG to use its data to make products but does not allow it to simply repackage and resell the data. Allscripts contends moreover that DRG actually proposed during negotiations that it be permitted to repackage and sell data but Allscripts rejected the proposal.
In moving for sanctions, DRG counters that Allscripts’ suit is baseless and was brought in bad faith to extort or eliminate DRG as a potential competitor. DRG argues that the Statistician's Certification is not part of the Agreement; that the Agreement itself does not place any limitations on how DRG can "use" Allscripts’ data to create its products; and that the evidence of the parties’ negotiations (and in particular the "Proposed Deal Summary") clearly demonstrates that DRG was to be allowed to resell Allscripts data. DRG argues that the court has essentially already opined on the suit's lack of merit in denying Allscripts’ motion for a preliminary injunction on the ground that Allscripts had not shown it was likely to prevail. DRG contends further that a "smoking gun" email shows that Allscripts knew its claims were baseless.
Based on this court's review of the pertinent pleadings, DRG's Rule 11 motion should be denied for at least four reasons.
First, dismissal with prejudice is an exceedingly rare sanction to be imposed only in extreme circumstances. See Pescatore v. Mead Johnson & Co. , No. CV 08-11680-PBS, 2009 WL 10694264, at *5 (D. Mass. July 21, 2009) (citing Taffanelli-Figueroa v. Fajardo-Velez , 483 F.3d 24, 26 (1st Cir. 2007) ); see also Reed v. Bennett , 312 F.3d 1190, 1195 (10th Cir. 2002) (dismissal or other final disposition of a party's claim is a severe sanction reserved for the extreme case, and is only appropriate where a lesser sanction would not serve the ends of justice); Marina Management Services, Inc. v. Vessel My Girls , 202 F.3d 315, 325 (D.C. Cir. 2000) (sanction of dismissal should be reserved for instances of "serious misconduct when lesser sanctions would be ineffective or are unavailable"); Dobronski v. Alarm Mgmt. II L.L.C. , No. 18-11055, 2019 WL 1232690, at *2 (E.D. Mich. Mar. 18, 2019) ( Rule 11 sanction of dismissal is disfavored) (collecting cases); compare Jimenez v. Madison Area Tech. Coll. , 321 F.3d 652, 657 (7th Cir. 2003) (affirming Rule 11 dismissal for "single most blatant example of a Rule 11 violation the district court had ever seen" where plaintiff falsified documents presented to court).
Not surprisingly, this court was unable to locate a single instance where a court in this Circuit ordered a dismissal solely on the basis of a Rule 11 motion. In that regard, DRG's memorandum of law cites to cases where the court considered Rule 11 sanctions only after some other terminal event had occurred in the case. See, e.g., Cruz v. Savage , 896 F.2d 626 (1st Cir. 1990) ( Rule 11 sanctions after jury verdict); Hochen v. Bobst Grp., Inc. , 198 F.R.D. 11 (D. Mass. 2000) ( Rule 11 sanctions after directed verdict); Galanis v. Szulik , 841 F. Supp. 2d 456, 458 (D. Mass. 2011) ( Rule 11 sanctions after voluntary dismissal). Thus, even assuming arguendo that the present lawsuit is without merit, and/or was brought to obtain a commercial advantage, the law of this Circuit provides absolutely no support for dismissal as a sanction at this juncture, and if anything militates firmly against it.
Second, although DRG, acknowledging the extraordinarily high standard it must meet, asserts that this case nonetheless presents the "unusual" case warranting sanctions, the court is unable to agree with DRG that Allscripts has clearly abused the legal process in bringing suit. DRG contends that it has obtained a "smoking gun" email in discovery which reveals that Allscripts’ claims are a fiction. This court has reviewed that evidence, however. Taking care to discuss the email only generally where it was redacted from the public docket pursuant to the case's protective order, the email appears to reflect an exchange among Allscripts executives discussing this case's potential value, but it does not reflect any discussions regarding the merits of the case, either explicitly or implicitly.
Further, although DRG argues that the court "has already indicated in its ruling on Allscripts’ preliminary injunction motion that it is skeptical of Allscripts’ claims," that assertion does not in any way reflect a judgment on the merits of Allscripts’ claims. Rather, in denying the preliminary injunction, the court wrote only that the "defendant has made a credible argument" that the HIPAA certification was only incorporated for purposes of ensuring compliance with HIPAA, and that there "is a reasonable dispute" as to whether it in fact did. D. 41 at 10, 12. As such, it is simply not accurate to assert that "[t]he Court has already ruled" on that portion of Allscripts claim; if anything, the court's opining that a "reasonable dispute" exists over a key issue negates the notion that the complaint is frivolous.
Further still, Allscripts has facially presented arguments based on evidence in the record on each of the three major disputed points, (the Statistician's Certification, the plain language of the Agreement, and the parol evidence of the parties’ negotiations). That DRG strongly disagrees with Allscripts’ characterization of the evidence does not suffice to show that the complaint was frivolous when filed. Cruz v. Savage , 896 F.2d 626, 633 (1st Cir. 1990) (courts should consider the reasonableness of attorney's conduct at the time the attorney acted). Moreover, the fact that DRG deemed it necessary to submit 17 exhibits totaling nearly 300 pages to support its motion tends to dilute its claim that the suit was self-evidently baseless.
Third, although framed as a motion for sanctions, DRG really asks the court to adjudicate Allscripts’ claims on the merits and dismiss them as lacking in factual support. But a Rule 11 motion is not a proper substitute for a dispositive motion and "should not be employed ... to test the sufficiency or efficacy of allegations in the pleading; other motions are available for those purposes." See e.g., E.E.O.C. v. Pines of Clarkston, Inc., 2014 WL 6612375, at *2 (E.D. Mich. Nov. 20, 2014) (quoting Safe–Strap Co. v. Koala Corp. , 270 F. Supp. 2d 407, 416 (S.D.N.Y. 2003) ). Accordingly, the better course is to adjudicate the merits of a party's claims through summary judgment and address the issue of Rule 11 sanctions at the end of the litigation. See Lichtenstein v. Consolidated Serv. Group, Inc. , 173 F.3d 17, 23 (1st Cir. 1999) ("Courts should, and often do, defer consideration of certain kinds of sanctions motions until the end of [the litigation] to gain a full sense of the case."); accord Rule 11 Advisory Committee Notes (1983 Amendment) (anticipating "that in the case of pleadings the sanctions issue under Rule 11 normally will be determined at the end of the litigation."); see also Metrocorps, Inc. v. E. Massachusetts Jr. Drum & Bugle Corps Ass'n , 912 F.2d 1, 3 (1st Cir. 1990) (imposition of a Rule 11 sanction is not a judgment on the merits of an action and may be made after the principal suit has been terminated).
Fourth, and finally, although DRG averred in its Rule 11 motion that addressing the motion would "promote judicial economy by allowing the Court to address Allscripts’ frivolous claims now, rather than waiting several months until summary judgment," DRG has since moved for summary judgment and the motion is presently pending before the court. (D. 152). As such, one of the justifications DRG urged upon the court in support of its motion no longer has any force.
V. CONCLUSION
For the foregoing reasons, DRG's Motion for Rule 11 Sanctions Against Allscripts (D. 67) should be DENIED.
The parties are hereby advised that under the provisions of Fed. R. Civ. P. 72(b), any party who objects to these proposed findings and recommendations must file specific written objections thereto with the Clerk of this Court within 14 days of the party's receipt of this Report and Recommendation. The written objections must specifically identify the portion of the proposed findings, recommendations, or report to which objection is made and the basis for such objections. The parties are further advised that the United States Court of Appeals for this Circuit has repeatedly indicated that failure to comply with Fed. R. Civ. P. 72(b), will preclude further appellate review of the District Court's order based on this Report and Recommendation. See Keating v. Secretary of Health and Human Services , 848 F.2d 271 (1st Cir. 1988) ; United States v. Emiliano Valencia-Copete , 792 F.2d 4 (1st Cir. 1986) ; Park Motor Mart, Inc. v. Ford Motor Co. , 616 F.2d 603 (1st Cir. 1980) ; United States v. Vega , 678 F.2d 376, 378-379 (1st Cir. 1982) ; Scott v. Schweiker , 702 F.2d 13, 14 (1st Cir. 1983) ; see also, Thomas v. Arn , 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).
DATED: September 11, 2020.