2D12-3812 / SP Healthcare Holdings, LLC v. Surgery Center Holdings, LLC

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State: Florida

Court: Florida Southern District Court

Docket No: 2D12-3812

Case Date: 03/08/2013

Plaintiff: 2D12-3812 / SP Healthcare Holdings, LLC

Defendant: Surgery Center Holdings, LLC

Preview:NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
MOTION AND, IF FILED, DETERMINED
IN THE DISTRICT COURT OF APPEAL
OF FLORIDA
SECOND DISTRICT
SP HEALTHCARE HOLDINGS, LLC; ASC  )
HOLDINGS, INC.; RODOLFO GARI, M.D.;  )
LAURIE GARI; RODOLFO GARI JR.,                   )
GRANTOR RETAINED ANNUITY TRUST;  )
and LAURIE GARI GRANTOR RETAINED  )
ANNUITY TRUST,                                   )
)
Petitioners,                                     )
                                                 )
v.                                               )   Case No. 2D12-3812
                                                 )
SURGERY CENTER HOLDINGS, LLC;                    )
ARMENIA AMBULATORY SURGERY                       )
CENTER, LLC; SURGERY CENTER                      )
HOLDINGS, INC.; and H.I.G. MIDDLE                )
MARKETS, LLC,                                    )
)
Respondents.                                     )
___________________________________ )
Opinion filed March 8, 2013.
Petition for Writ of Certiorari to the Circuit
Court for Hillsborough County; Herbert J.
Baumann, Jr., Judge.
Stacy D. Blank, Joseph H. Varner, III, and
Bradford D. Kimbro of Holland & Knight,
Tampa, and Leonard S. Englander and
William G. Lazenby of Englander & Fischer
LLP, St. Petersburg, for Petitioners.
Alan Rosenthal, Jack R. Reiter, and Natalie
J. Carlos of Carlton Fields, P.A., Miami, for
Respondents.

MORRIS, Judge.
SP Healthcare Holdings, LLC; ASC Holdings, Inc.; Rodolfo Gari, M.D.;
Laurie Gari; Rodolfo Gari Jr. Grantor Retained Annuity Trust; and Lauri Gari Grantor
Retained Annuity Trust (the Sellers) seek certiorari review of an order granting a motion
to compel compliance with a discovery order filed by Surgery Center Holdings, LLC;
Armenia Ambulatory Surgery Center, LLC; Surgery Center Holdings, Inc.; and H.I.G.
Middle Markets, LLC (the Buyers).   We grant the petition and quash the portion of the
order requiring that all discovery be approved by the circuit court.
I.   Background
In 2009, H.I.G. Middle Markets entered into negotiations with SP
Healthcare Holdings, LLC, and ASC Holdings, Inc., for the purchase of a group of
ambulatory surgical centers.1   H.I.G. Middle Markets created Surgery Center Holdings,
LLC; Armenia Ambulatory Surgery Center, LLC; and Surgery Center Holdings, Inc., for
the purpose of owning and operating the surgery centers.   H.I.G. Middle Markets was
not a party to the agreement but negotiated the agreement on behalf of the Buyers'
investors.   The purchase agreement, dated December 24, 2009, provided for an initial
cash payment of approximately $120,000,000 as well as a potential earn-out payment
of up to $10,000,000 based on the surgery centers' 2010 financial performance.   The
purchase agreement also provided for the establishment of an escrow account holding
funds in the amount of $2,944,000 to cover claims that the Buyers may have for
indemnification according to their rights under the purchase agreement.
1The facts regarding the relationship and dispute between the parties are
gleaned from the complaint and other filings in the circuit court.
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In December 2010, the Buyers submitted claims for indemnification to the
escrow account.   These claims, totaling $4,967,521, related to alleged overpayment,
billing, coding, and collections issues that occurred prior to the closing date.   In July
2011, the Buyers asserted additional claims for indemnification, alleging that the Sellers
had misrepresented their accounts receivable by $14,035,031.   After applying a
multiplier provided for in the purchase agreement, the Buyers claimed a loss of
$78,034,772.   The Sellers, on the other hand, claimed that they are entitled to the full
$10,000,000 earn-out based on the 2010 performance of the surgery centers.   The
Sellers claimed that the Buyers were misrepresenting that the accounts receivable were
overstated in an effort to avoid paying the Sellers the $10,000,000 earn-out and that the
Buyers never had the intention to make the $10,000,000 earn-out payment to the
Sellers.
As a result of these disputes, the Sellers filed suit against the Buyers and
H.I.G. Middle Markets, alleging two counts for fraud, two counts for breach of contract,
and one count to adjudicate the Buyers' claims for indemnification made against the
escrow account.   The Sellers sought to discover evidence of other similar conduct by
H.I.G. Middle Markets and its parent company, H.I.G. Capital, in other business
transactions.   The Sellers claimed that H.I.G. Middle Markets responded falsely in its
interrogatory response that it had not been a party to any other lawsuit; the Sellers had
discovered that H.I.G. Middle Markets and its affiliates had been involved in several
other lawsuits.   Specifically, the Sellers claimed that they learned that an H.I.G. Middle
Markets' affiliate had alleged similar facts in another legal dispute.   The Sellers served
the Buyers with a notice of intent to serve subpoenas duces tecum without deposition
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on numerous in-state and out-of-state nonparties which had been acquired by H.I.G.
Middle Markets or its affiliates since 2005.
The Buyers filed a counterclaim and third-party complaint for declaratory
judgment, breach of contract, and abuse of judicial process.   The Buyers named
Rodolfo Gari and Laurie Gari and the two trusts as new defendants, claiming that all of
the Sellers engaged in a campaign to disparage and discredit H.I.G. Middle Market and
H.I.G. Capital.   The Buyers objected to the Sellers' serving the subpoenas duces tecum.
A special magistrate heard the issue of the subpoenas, and the circuit
court entered an order ratifying the special magistrate's rulings on March 8, 2012.  With
respect to entities located outside of Florida, the order directed the Sellers to "follow all
applicable rules and procedures for issuance and service of out-of-state subpoenas, to
the extent required by the target states."   The circuit court provided that the Sellers
"may issue the subpoenas identified" in the notice.   However, the circuit court granted
the Buyers' objections "with respect to the any proposed subpoenas to entities [located]
outside the United States."   The circuit court entered a thirty-day stay of the order from
the date of the hearing (February 27, 2012) so that the Buyers could "seek relief from
the appellate court."   The Buyers sought certiorari review in this court in case 2D12-
1772, and this court granted a further stay pending review.
The Sellers contend that after the expiration of the circuit court's stay and
before the entry of the stay pending review in this court, the Sellers "resumed their
informal investigation of the facts surrounding their claim."   This prompted the Buyers to
file on April 9, 2012, a motion to compel compliance with the court order and for
sanctions for litigation misconduct.   The Buyers claimed that the Sellers circumvented
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the discovery order by issuing numerous ex parte discovery requests and mass emails
to hundreds of recipients through professional networking websites in Europe and the
United States.   The Buyers claimed that the Sellers misrepresented to these recipients
that the Sellers were in the process of having Florida subpoenas served for the purpose
of gathering this information if the recipients were not willing to provide the information.
The Buyers claimed that the Sellers were "requesting the same information and
documents in the [s]ubpoenas [that] were subject to" the court's March 8, 2012, order.
The Buyers argued that the Sellers were trying to circumvent the March 8, 2012, order
and were attempting "to disparage the reputation of H.I.G. Capital and to unlawfully gain
leverage in this case."
The circuit court held a hearing on May 1, 2012, after which it entered an
order granting the Buyers' motion.   The written order entered on June 21, 2012,
provides in relevant part:
2.   As determined by the Court on May 1, 2012, [the
Sellers'] use of Florida subpoenas to obtain discovery from
third parties in jurisdiction [sic] outside of Florida and use of
other informal discovery practices to obtain that discovery
without notice were contrary to the intent of the Court's
March 8, 2012[,] Order Ratifying Recommendation of
Special Magistrate.
3.   Pursuant to Florida Rule of Civil Procedure
1.280(c), the Court is limiting discovery in this case by
requiring that all discovery requests to third parties be
conducted by formal compulsory process through the court
system.
The order also provided that it was subject to the stay entered by this court in 2D12-
1772 and that after the resolution of 2D12-1772, "the parties may seek rehearing or
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clarification of this [o]rder."2   The court also reserved ruling on the Buyers' request for
sanctions.   The Buyers' petition for writ of certiorari filed in case 2D12-1772 was later
denied by this court on October 17, 2012.
II.   Analysis
The Sellers now seek certiorari review of the June 21, 2012, order
granting the Buyers' motion to compel compliance.   In their petition for writ of certiorari,
the Sellers claim that the circuit court departed from the essential requirements of the
law in precluding the Sellers from communicating with any third party about the facts of
this case without first proceeding through the court's formal discovery process.   The
Sellers contend that the order infringes on their right to free speech and their right to
critical work product and that the circuit court was without authority to enter the order.
The Buyers respond that the June 21, 2012, order only limits compulsory disclosure and
not informal fact-finding generally.3
Certiorari review is proper here.   See Zirkelbach Constr. v. Rajan, 93 So.
3d 1124, 1127 (Fla. 2d DCA 2012) (" '[R]eview by certiorari is appropriate when a
2The Sellers indicated their intention to seek clarification or rehearing, but
it is not clear if the issue was ever brought back before the circuit court in the form of a
motion.
3The Buyers also respond that the issue is not preserved because it was
never raised below and that the Sellers are attempting to challenge the March 8, 2012,
order when they failed to timely seek review of that order.   These arguments are without
merit because the Sellers alerted the circuit court to the issues raised herein; in a letter
to the circuit court, the Sellers opposed the Buyers' proposed order on the bases that it
misstates the circuit court's rulings and may "impinge upon [the Sellers'] free speech
rights and the obligations of [the Sellers'] counsel."   Also, the Sellers do not challenge
the March 8, 2012, order, which simply directs how the Sellers shall proceed in issuing
subpoenas to certain out-of-state third parties.   Rather, the Sellers challenge language
specific to the June 21, 2012, order, which the Sellers claim broadly restricts their right
to interview or contact third parties beyond the scope of the subpoenas that were the
subject of the March 8, 2012, order.
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discovery order departs from the essential requirements of law, causing material injury
to a petitioner throughout the remainder of the proceedings below and effectively
leaving no adequate remedy on appeal.' " (alteration in original) (quoting Allstate Ins. v.
Langston, 655 So. 2d 91, 94 (Fla. 1995)); Rodriguez v. Feinstein, 734 So. 2d 1162,
1163 (Fla. 3d DCA 1999) (holding that certiorari review is proper when an order
implicates a violation of the parties' constitutional rights and the harm cannot be
corrected on plenary appeal).
We first look to the circuit court's statements made at the hearing on May
1, 2012.   After hearing argument from the Buyers and the Sellers, the following
discussion occurred:
COURT:   Generally speaking, yes, of course, you can
do informal fact-finding, but my subpoena is not informal,
you know, because once I issue discovery, I issue discovery.
So from today forward I'm going to have to enter
some type of status quo order that basically requires
discovery to run through the court system to obtain discovery
from these various entities because we just need to make it
clear so everybody's kind of playing all discovery through the
court system.
Yes, I would—my—I intended the order to be through
the process of the out-of-state jurisdiction, obtain the
subpoena through that, and not send a letter to an entity with
the subpoena attached.   I intended it to be—because my
subpoenas do not or my issue—things I issue have no force
in another jurisdiction, so I don't—I dislike having an order of
the Court suggest that it can do things that it can't do.   That's
just my personal view.   So I try to be specific on that from
that standpoint.
So I'm going to do this.   I'm just going to order that on
this—I guess the question is, is there a need to have just a
generic status quo order so that no discover—all discovery,
any investigation of discovery, is conducted through the
court processes?
[SELLERS' COUNSEL]:   Judge, do I understand—
with respect to the subpoenas, I understand your ruling.   I
hear what you're saying . . . but with respect to [my] going on
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the Internet looking for cases, my client['s] calling people he
knows asking questions, one, there was never any request
to limit that behavior, I don't know what the authority would
be for it, and that's not in your order.
COURT:   The authority—I mean, they have—the
authority—since I—being in business court, I get these
periodically.   There is some case law authority that allows
the Court to order what's called a status quo or status quo
injunction/order that kind of gets everything—stops parties
from escalating in effect issues beyond where—and I don't
like to do it where . . . there's legitimate need to investigate.
I do see the need to do it where there's suggestions of
the need—you know, where there's going to be some type of
suggestion that . . . besmirches a party's reputation with
regard to the—you know, just making the request and
suggesting something that doesn't need to be suggested.
So it's a balance, to answer the question.
Clearly the case law doesn't favor the status quo
orders, but that's why I'm asking because I can just order
everybody to take this through the court system?
The thing I'm trying to limit—or "balance" is a better
word, I guess, to balance your right to obtain the information
to prove potentially your fraud count versus their right not to
have their reputation kind of sullied . . .
I understand you have the right to conduct discovery.
I get that.   I think [Buyers' counsel] gets that.   I appreciate
the fact that they want to minimize the fallout from that type
of discovery.
[SELLERS' COUNSEL]: I don't know from your ruling
if I can go on the internet and do research about H.I.G..
COURT:   You can research your heart away. . .                      .   I'm
trying to limit affirmative statements being placed out
there . . .                                                         .   And so I'm trying to limit the affirmative thing, not
the receipt of information.
So I'm trying to limit it so that you can—I'm letting you
subpoena all these people.   It's not that—it's not that I'm not
allowing you to use the court process to directly subpoena all
these entities to obtain your information. . .                      .   I'm just
requiring you to obtain it through the formal court process so
that we're limiting the fallout.   It's just compulsory process
through the court system, and that's the way we're going to
do it.
-8-

The circuit court's statements indicate that the court was concerned with
the competing interests of the Buyers and the Sellers, but the statements do not
unequivocally demonstrate whether the circuit court intended for informal investigations
in this case to be court-approved or whether the circuit court intended that its ruling
apply only to requests for documents.   The Buyers claim that the order only relates to
formal discovery or compulsory disclosure requested by a party and not to informal
investigation or fact-finding.   But the Sellers' contend that the Buyers have taken a
contrary position below, i.e., that the Sellers must go through the court process in order
to informally communicate with nonparties.  We conclude that the circuit court's written
order can be interpreted to prevent the Sellers from seeking information, even
informally, from any third parties without first obtaining permission from the court.
As its basis for the order, the court cited Florida Rule of Civil Procedure
1.280(c), which provides in relevant part:
(c) Protective Orders.   Upon motion by a party or by
the person from whom discovery is sought, and for good
cause shown, the court in which the action is pending may
make any order to protect a party or person from annoyance,
embarrassment, oppression, or undue burden or expense
that justice requires, including one or more of the following:
(1) that the discovery not be had; (2) that the discovery may
be had only on specified terms and conditions, including a
designation of the time or place; (3) that the discovery may
be had only by a method of discovery other than that
selected by the party seeking discovery; (4) that certain
matters not be inquired into, or that the scope of the
discovery be limited to certain matters; (5) that discovery be
conducted with no one present except persons designated
by the court; (6) that a deposition after being sealed be
opened only by order of the court; (7) that a trade secret or
other confidential research, development, or commercial
information not be disclosed or be disclosed only in a
designated way; and (8) that the parties simultaneously file
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specified documents or information enclosed in sealed
envelopes to be opened as directed by the court. . .
The circuit court's citation to rule 1.280(c) indicates that the circuit court's order serves
as a type of protective order.   Although the Sellers do not cite rule 1.280(c), they seem
to suggest that the law regarding unconstitutional restraints on free speech operates as
a limitation on the circuit court's authority under rule 1.280(c).   See, e.g., Forrest v. Citi
Residential Lending, 73 So. 3d 269 (Fla. 2d DCA 2011) (recognizing the difference
between unconstitutional prior restraints on free speech and orders entered within the
circuit court's discretion to protect parties and prevent the abuse of the discovery
process).
" 'A trial court possesses broad discretion in overseeing discovery[] and
protecting the parties that come before it.' "   Rojas v. Ryder Truck Rental, 641 So. 2d
855, 857 (Fla. 1994) (quoting Rojas v. Ryder Truck Rental, 625 So. 2d 106, 107 (Fla. 3d
DCA 1993)).   Under the parameters of rule 1.280(c), the circuit court may fashion
discovery orders that protect a party from abuses of the discovery process.  We have no
doubt that the circuit court had the authority to protect the Buyers from the Sellers'
alleged conduct in regard to the numerous subpoenas that were at issue in the March 8,
2012, order and that were sought to be served on various out-of-state entities.   The
issue of those subpoenas had previously been before the court, and the circuit court
acted within its discretion in finding that a protective order was necessary in regard to
that matter.   But to the extent that the order broadly requires all informal fact-finding to
be approved by the court, the circuit court exceeded its authority for two reasons.
First, the order severely impedes the Sellers' ability to prepare their case
for trial.   Neither party has cited, nor have we been able to find, any Florida decisions
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directly on point.   But we rely on two out-of-state cases as persuasive authority.   In
International Business Machines v. Edelstein, 526 F. 2d 37, 41 (2d Cir. 1975), the circuit
court reviewed an order that provided that when the parties interview a witness in the
absence of opposing counsel, the parties must hire a court reporter to transcribe the
interview so that it could be reviewed by the court.   On appeal, the circuit court noted
the crucial role an interview may play in a party's preparation of the case:
A lawyer talks to a witness to ascertain what, if any,
information the witness may have relevant to his theory of
the case, and to explore the witness' knowledge, memory
and opinion—frequently in light of information counsel may
have developed from other sources.   This is part of an
attorney's so-called work product.   It is the common
experience of counsel at the trial bar that a potential witness,
upon reflection, will often change, modify or expand upon his
original statement and that a second or third interview will be
productive of greater accuracy.
Id..   The court opined that the order "unduly infringed upon counsels' ability to prepare
their case for trial" and did a disservice to the court by requiring the court's scrutiny over
"the process by which counsel researches, develops and integrates the case which he
ultimately presents."   Id. at 42.   The court noted that courts cannot interfere "with the
preparation of a client's defense by restricting his counsel's ability to freely interview
witnesses willing to speak with him."   Id. at 43.
We believe that the rationale behind the Edelstein decision is applicable
here.   The circuit court's order in this case can be read to require the court's permission
before informal investigation may be conducted.   This hinders the Sellers' counsel's
ability to prepare their case for trial and places an unnecessary burden on the circuit
court to oversee informal fact-finding.   Beyond the issue of the subpoenas discussed at
the March 8, 2012, hearing, the Buyers did not establish, and the circuit court did not
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find, that there was a need to limit the Sellers' ability to engage in other informal
discovery.
Second, the order infringes on the Sellers' right to free speech.   In Maggi
v. Superior Court of Orange County, 15 Cal. Rptr. 3d 161, 166-67 (Cal. Ct. App. 2004),
the Fourth District Court of Appeal of California held that the trial court erred in
restricting a party's right to talk to witnesses on an informal basis.   The parties had
entered into a stipulated protective order that prevented them from disclosing to third
parties any confidential document produced in discovery.   Id. at 163.  When confidential
documents were disclosed to nonparty investors of the defendants via an anonymous
letter, the court issued a restraining order preventing the plaintiffs' from discussing the
lawsuit or related lawsuits with the nonparty investors without first receiving the court's
permission.   Id. at 163-64.   The court later denied the plaintiffs' request when they
sought permission to discuss the case with certain nonparty investors who had
contacted them.   Id. at 164-65.
The appellate court held that the order was a gag order that did not pass
constitutional muster because the restrained speech did not pose a threat to a protected
competing interest.   Id. at 166.   The court held that the right to a fair trial is a
constitutionally protected competing interest that is not outweighed by the opposing
party's right to be free from abusive discovery.   The court found that the order was "not
merely a restriction on discovery, but a restriction on speech" because it prohibited "any
informal discussion with the investors without obtaining the court's permission."4   Id. at
4The orders also prohibited the plaintiffs' counsel from representing any of
the third-party investors.   The court held that this restriction also infringed on "the rights
of free speech and association without adequate justification."   15 Cal. Rptr. 3d at 167.
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167.   The court held that the order was an improper sanction for the plaintiffs' allegedly
violating a discovery order and that other forms of sanctions were available to remedy
the abuse of the discovery process.   Id.
As in Maggi, the order here infringes on the Sellers' right to free speech
because it prohibits any informal investigation of the case without the Sellers' first
seeking permission from the court.   The order is not simply an order regulating
discovery that had become an issue in the case; it broadly restricted the Sellers' future
speech.   The Sellers' actions in violating the earlier discovery order do not warrant the
circuit court broadly restricting the Sellers' ability to informally investigate their case by
contacting third parties.
III.   Conclusion
In sum, the circuit court exceeded its authority to the extent that its order
can be read to require that all investigation regarding third parties must go through the
court system.   The circuit court was attempting to protect the Buyers from
embarrassment or disparagement based on the Sellers' misconduct regarding particular
subpoenas, but the circuit court could have fashioned an order protecting the Buyers
from that misconduct without broadly restricting the Sellers' right to prepare for trial and
their right to free speech.  We grant the Sellers' petition and quash that portion of the
order.
Petition granted; order quashed in part.
NORTHCUTT, J., and GALLEN, THOMAS M., ASSOCIATE SENIOR JUDGE, Concur.
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