UPMC et al v. CBIZ, INC. et al
MEMORANDUM OPINION AND ORDER granting in part and denying in part 53 Motion for Protective Order; granting in part and denying in part 56 Sealed Motion, and as more fully stated in said Memorandum Opinion and Order. Signed by Judge Kim R. Gibson on 9/15/2017. (dlg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
UPMC d/b/a UNIVERSITY OF
PITTSBURGH MEDICAL CENTER, and
UPMC ALTOONA f/k/a ALTOONA
REGIONAL HEALTH SYSTEM,
CBIZ, INC., CBIZ BENEFITS &
INSURANCES SERVICES, INC., and
JON S. KETZNER,
Case No. 3:16-cv-204
JUDGE KIM R. GIBSON
This case arises from the acquisition of a healthcare facility in Altoona, Pennsylvania.
Plaintiffs allege that defendants’ actuarial valuation of that facility’s pension plan understated the
plan’s liabilities by $132.5 million, and that this valuation caused plaintiffs to unwittingly assume
those liabilities. This opinion does not delve deep into those allegations. Instead, it addresses a
voluminous discovery dispute between the parties—specifically, plaintiffs’ motion for protective
order (ECF No. 53) and defendants’ motion to compel (ECF No. 56). For the reasons below, both
motions will be denied in part and granted in part.
The University of Pittsburgh Medical Center—UPMC—is a nonprofit corporation that
operates healthcare facilities in the western part of Pennsylvania. UPMC is also the parent
company for numerous entities throughout Pennsylvania that provide healthcare services.
UPMC Altoona is one such entity. UPMC Altoona operates healthcare facilities in and around
Blair County, Pennsylvania, and is headquartered in—as its name suggests—Altoona,
(hereinafter “Altoona Regional”) until July 1, 2013, when it was acquired by UPMC.
This case stems from that acquisition. CBIZ, Inc. and its subsidiary, CBIZ Benefits &
Insurances Services, Inc. (hereinafter “CBIZ B&I”), provide retirement-plan services for
organizations, including services such as actuarial valuations, certifications and statements of
accounting liabilities, actuarial determinations of legally required retirement plan contributions,
401k plan designs, and insurance-benefits consulting. From 2002 through February 2015, CBIZ
and CBIZ B&I performed actuarial valuations for Altoona Regional’s (and, after it was acquired
by UPMC, for UPMC Altoona’s) two largest pension-benefit plans. In that capacity, CBIZ and
CBIZ B&I prepared certifications of the liabilities of those pension-benefit plans and prepared
certain certified governmental filings regarding those plans on behalf of Altoona Regional and
UPMC Altoona. Jon S. Ketzner is an actuary who was employed by CBIZ and CBIZ B&I until his
retirement in early 2015. For at least the 13 years prior to retirement, Ketzner was the lead (and
only) actuary to value the obligations and liabilities of Altoona Regional’s and UPMC Altoona’s
two largest pension-benefit plans.
On September 16, 2016, UPMC and UPMC Altoona filed this case against CBIZ, Inc., CBIZ
B&I, and Ketzner. Plaintiffs allege that—from at least July 1, 2008, through February 2015—
defendants failed to adhere to actuarial standards of practice and that, as a result, they
significantly undervalued the obligations and liabilities of Altoona Regional’s and UPMC
Altoona’s pension-benefit plans.
Plaintiffs assert, among other things, that defendants
understated the plans’ Projected Benefit Obligations—the amount of money to be paid into the
plans to satisfy all pension entitlements—by roughly $132.5 million, and overstated Altoona
Regional’s profitability as a result. Plaintiffs assert also that UPMC purchased Altoona Regional
in reliance on defendants’ erroneous valuations. UPMC Altoona brings claims for professional
negligence and breach of contract against all defendants, while UPMC brings a claim for negligent
misrepresentation against all defendants. Defendants moved to dismiss plaintiffs’ claims and
that motion remains pending. In the meantime, discovery has begun and is ongoing.
On July 20, 2017, plaintiffs filed a motion for protective order (ECF No. 53). Plaintiffs seek
an order stating that they do not have to respond to certain document requests and interrogatories
propounded by defendants. Plaintiffs argue that these discovery requests are not relevant,
unduly burdensome, and not proportional to the needs of the case. On July 21, 2017, defendants
filed a motion to compel documents from UPMC (ECF No. 56). Both motions are now fully
briefed and ready to be decided.
Jurisdiction & Venue
UPMC is a Pennsylvania nonprofit corporation with its principal place of business in
Pittsburgh, Pennsylvania. (ECF No. 1 ¶ 1.) UPMC Altoona is likewise a Pennsylvania nonprofit
corporation, with its principal place of business in Altoona, Pennsylvania. (Id. ¶ 2.) Plaintiffs
allege that CBIZ, Inc. is a Delaware corporation with its principal place of business in Cleveland,
Ohio, that CBIZ B&I is a Missouri corporation (they do not mention CBIZ B&I’s principal place
of business), and that Ketzner resides—and presumably mean that he is domiciled—in Maryland.
(Id. ¶¶ 4-7.) Plaintiffs seek damages “in an amount no less than” $142 million. (Id. at 18.) Thus,
this case is between citizens of different states and the amount in controversy exceeds $75,000.
This Court therefore has subject-matter jurisdiction over plaintiffs’ claims under 28 U.S.C.
§ 1332(a)(1). And because a substantial part of the events giving rise to plaintiffs’ claims occurred
in the Western District of Pennsylvania, venue is proper in this district under 28 U.S.C. §
Federal Rule of Civil Procedure 26 provides the general framework for discovery in
federal civil litigation. Rule 26(b)(1) defines the scope of discovery as “any nonprivileged matter
that is relevant to any party’s claim or defense and proportional to the needs of the case.” This
scope formerly included matters that were “reasonably calculated” to lead to the discovery of
admissible evidence, but Rule 26 as amended—and effective December 1, 2015— no longer
includes this language. A matter is relevant if “it has any tendency to make a fact more or less
probable than it would be without the evidence; and . . . the fact is of consequence in determining
the action.” See Fed. R. Evid. 401. In determining whether discovery is proportional to the needs
of the case, courts must consider “the importance of the issues at stake in the action, the amount
in controversy, the parties’ relative access to relevant information, the parties’ resources, the
importance of the discovery in resolving the issues, and whether the burden or expense of the
proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(l).
Rule 37 provides the mechanism to compel discovery from a person or party who refuses
to provide discovery. The party moving to compel discovery under Rule 37 bears the initial
burden of proving the relevance of the material requested. See Morrison v. Phila. Hous. Auth., 203
F.R.D. 195, 196 (E.D. Pa. 2001) (citations omitted). If the movant meets this initial burden, then
the burden shifts to the person resisting discovery to establish that discovery of the material
requested is inappropriate. Momah v. Albert Einstein Med. Ctr., 164 F.R.D. 412, 417 (E.D. Pa. 1996)
(citation omitted). The person resisting discovery must explain with specificity why discovery is
inappropriate; the boilerplate litany that the discovery sought is overly broad, burdensome,
oppressive, vague, or irrelevant is insufficient. See Josephs v. Harris Corp., 677 F.2d 985, 991-92 (3d
Rule 26(c) authorizes a person or party resisting discovery to move for a protective order.
If the movant establishes good cause for such an order, then the court may impose restrictions on
the extent and manner of discovery “to protect a party or person from annoyance,
embarrassment, oppression, or undue burden or expense.” Fed. R. Civ. P. 26(c)(1). “Good cause
is established on a showing that disclosure will work a clearly defined and serious injury to the
party seeking closure.” Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1071 (3d Cir. 1984) (citation
This injury, too, must be shown with specificity; “[b]road allegations of harm,
unsubstantiated by specific examples or articulated reasoning,” do not establish good cause.
Cipollone v. Liggett Grp., Inc., 785 F.2d 1108, 1121 (3d Cir. 1986) (citation omitted). Additionally,
Rule 26(b)(2)(C) provides that—on motion or its own initiative—the court must limit the extent
of discovery if it determines that “the discovery sought is unreasonably cumulative or
duplicative, or can be obtained from some other source that is more convenient, less burdensome,
or less expensive,” or that “the proposed discovery is outside the scope permitted by Rule
Discussion & Analysis
Two motions are before the Court: plaintiffs’ motion for protective order (ECF No. 53) and
defendants’ motion to compel (ECF No. 56.) Although there are some discrepancies between the
exact discovery requests addressed in the two motions, 1 the dispute in both motions boils down
to an argument about whether the requests at issue fall within the scope of discovery provided
by Rule 26(b)(1). The Court will thus analyze the motions together.
To do so, however, it is first necessary to know the exact discovery requests that are
disputed. The parties’ submissions are less than clear on this point; they cite numerous requests
throughout their motion and brief (ECF Nos. 53, 57), but both of their proposed orders (ECF Nos.
53-2, 56-2) include language regarding requests never explicitly cited in their motion and brief.
Because the parties’ proposed orders appear to be the most comprehensive listings of the
disputed requests, the Court will analyze the parties’ motions with respect to the requests
referenced in the proposed orders. These are defendants’ requests for production numbers 9-20,
35-44, 56, 69, 72-75, 78-81, 84, 92, and 94-98. (See ECF Nos. 53-2, 56-2.) Plaintiffs also seek a
protective order with respect to numbers 7-8 and 10 of defendants’ interrogatories to UPMC.
(ECF No. 53-2.)
There is one more notable issue with the parties’ motions. Although their proposed orders
give some guidance on the disputed requests, the parties do not clearly connect their arguments
to specific discovery requests. Thus, when it is not entirely clear which requests a specific
argument applies to, the Court will analyze the argument generally in an attempt to clarify the
scope of allowable discovery.
Specifically, plaintiffs seek a protective order with respect to fewer than all of the requests defendants
raise in their motion to compel. (Compare ECF No. 53-2, with ECF No. 56-2.) Plaintiffs opposed defendants’
motion to compel in its entirety, though, so this discrepancy is of no real consequence.
Because the parties’ arguments are based on UPMC’s negligent-misrepresentation claim,
it is useful to outline the elements of such a claim under Pennsylvania law before addressing the
arguments. The Pennsylvania Supreme Court has adopted § 552 of the Restatement (Second) of
Torts for negligent-misrepresentation claims like the claim in this case. See Bilt-Rite Contractors,
Inc. v. Architectural Studio, 866 A.2d 270, 287 (Pa. 2005) (“we hereby adopt Section 552 as the law
in Pennsylvania in cases where information is negligently supplied by one in the business of
supplying information”). 2 Section 552 provides in relevant part:
(1) One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, [negligently] supplies false information for the
guidance of others in their business transactions, is subject to
liability for pecuniary loss caused to them by their justifiable
reliance upon the information . . . .
(2) [This liability] is limited to loss suffered
(a) by the person or one of a limited group of persons for whose
benefit and guidance he intends to supply the information or
knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the
information to influence or knows that the recipient so intends
or in a substantially similar transaction.
To establish liability under § 552, a plaintiff must show that (1) the defendant was in the business
of providing information for the guidance of others, (2) the defendant had a pecuniary interest in
By its terms, § 552 is limited to cases where the defendant “in the course of his business, profession or
employment, or in any other transaction in which he has a pecuniary interest, supplies false information
for the guidance of others in their business transactions.” In other cases, Pennsylvania common law—
which provides substantially similar elements as § 552—governs the tort of negligent misrepresentation.
See Bilt-Rite, 866 A.2d at 287 (“we do not view Section 552 as supplanting the common law tort of negligent
misrepresentation, but rather, as clarifying the contours of the tort as it applies to those in the business of
providing information to others”).
the transaction in which he provided the information, (3) the information was false, (4) the
defendant failed to exercise reasonable care in obtaining or communicating the information, (5)
the plaintiff justifiably relied on the information, and (6) the plaintiff suffered injury as a result.
See Excavation Techs., Inc. v. Columbia Gas Co. of Pa., 936 A.2d 111, 115-16 (Pa. Super. Ct. 2007).
Implicit in this last element is a causation requirement. See Bouriez v. Carnegie Mellon Univ., 585
F.3d 765, 771 (3d Cir. 2009) (“proximate cause is an essential element of both fraudulent
misrepresentation and negligent misrepresentation claims” (citation omitted)); Gibbs v. Ernst, 647
A.2d 882, 890-91 (Pa. 1994) (describing elements of negligent-misrepresentation claim under
Pennsylvania common law, including proximate-cause requirement).
While § 552 contains the elements of a negligent-misrepresentation claim (with § 552(2)
limiting what kind of loss is recoverable), § 552B governs the issue of damages for a negligentmisrepresentation claim. Section 552B provides:
(1) The damages recoverable for a negligent misrepresentation are
those necessary to compensate the plaintiff for the pecuniary loss
to him of which the misrepresentation is a legal cause, including
(a) the difference between the value of what he has received in
the transaction and its purchase price or other value given for
(b) pecuniary loss suffered otherwise as a consequence of the
plaintiff’s reliance upon the misrepresentation.
(2) the damages recoverable for a negligent misrepresentation do
not include the benefit of the plaintiff’s contract with the defendant.
Although the Pennsylvania Supreme Court has explicitly adopted § 552, it has not—yet—adopted
§ 552B. Federal courts in this circuit, however, have predicted that the Pennsylvania Supreme
Court would adopt § 552B if the issue presented itself. See Brand Mktg. Grp. LLC v. Intertek Testing
Servs., N.A., 801 F.3d 347, 356 (3d Cir. 2015) (“we predict that the Pennsylvania Supreme Court
would adopt § 552B”); Torres v. Borzelleca, 641 F. Supp. 542, 546 (E.D. Pa. 1986) (“It is this Court’s
prediction, however, that the Pennsylvania Supreme Court would follow [S]ection 552B . . . .”).
Because this Court agrees with that prediction—and because both plaintiffs and defendants rely
on § 552B (see ECF Nos. 53 at 5, 57 at 4)—the Court applies § 552B here.
Defendants’ Discovery Requests
According to defendants, the disputed requests for production relate to four categories of
(1) post-acquisition documents regarding the financial
performance of Altoona [Regional], including the consideration
paid by UPMC, Altoona [Regional’s] value, and the financial
benefit derived by UPMC from the acquisition, (2) post-acquisition
valuations and assessments regarding Altoona [Regional’s]
impact on UPMC’s health insurance business, (3) specific limited
documents regarding similar acquisitions by UPMC involving
defined benefit plans, and (4) pension valuation reports prepared
by UPMC’s own actuaries for UPMC’s pension plans, apart from
(ECF No. 57 at 4.) Condensing a dispute about 39 document requests to 4 categories makes it a
lot more manageable, but not all of the disputed requests support defendants’ categorization. For
example, requests 9-19 and 94-97—which defendants contend fall within the first two categories
of requests seeking postacquisition documents (see ECF No. 56-2 at 1)—contain no language
limiting the requests to postacquisition documents. Some of these requests actually disclaim such
a limitation. (See ECF No. 56-1 ¶¶ 9 (“2008 to present”), 10-11 (“2011 to present”), 12-13 (“2008 to
present”), 14 (“2011 to present”), 15 (“prior to and after the Acquisition”) 16-19 (no temporal
scope), 94 (“2008 to the present”) 96-97 (same).) Based on defendants’ arguments, the Court
assumes that defendants are now limiting these requests to postacquisition documents only. The
Court will thus analyze defendants’ first two categories of requests accordingly.
Postacquisition Financial Information (Requests 9-20, 72-75, 92, and 9498, as well as Interrogatories 7-8)
Through their requests for postacquisition financial information (requests 9-20, 72-75, 92,
and 94-98 as well as interrogatories 7-8), defendants seek extensive information regarding—
among other things—the financial performance of both UPMC and UPMC Altoona since the
acquisition, as well as the effects the acquisition had on UPMC’s health-insurance business.
Defendants argue that this information is discoverable because it is relevant to (1) causation and
damages, 3 (2) reliance, and (3) plaintiffs’ duty to mitigate. The Court will address these grounds
Causation & Damages
First, the Court will examine causation and damages. As a threshold matter, defendants
argue that they are entitled to plaintiffs’ postacquisition financials to determine the actual
consideration UPMC paid for Altoona Regional. Defendants point out that plaintiffs—in their
complaint—allege that UPMC committed to “invest[ing] $250 million in [UPMC] Altoona over
ten years, and contribut[ing] $10 million to [UPMC] Altoona’s foundation.” (See ECF No. 1 ¶ 35.)
And defendants note that the acquisition agreement gives UPMC some discretion on how to
satisfy this commitment. Defendants argue that gauging how UPMC is satisfying this ten-year
commitment—determining the source of funds and amounts paid—necessarily requires
In their filings, defendants do not clearly distinguish between causation and damages in their arguments
why plaintiffs’ postacquisition financials are relevant. This makes sense since these elements—and
defendants’ arguments about them—appear to overlap. The Court will therefore likewise discuss
causation and damages together.
postacquisition financials, and that this information is relevant to the injury and causation
Plaintiffs disagree to some extent. They point out that defendants’ document request 116
already sought “[a]ll documents reflecting, evidencing, or otherwise relating to any amount paid
or any other consideration provided by UPMC in the Acquisition.” (ECF No. 56-1 ¶ 116.) And
plaintiffs represent that they have “already agreed to produce (and in fact [have] never objected
to producing) documents sufficient to show the payments UPMC has made under the 2013
Integration and Affiliation Agreement with [UPMC] Altoona.” (ECF No. 61 at 2.) In response,
defendants assert that these documents would be insufficient because defendants seek to discover
more than just the payments themselves—they seek to discover the source of the funds for the
As an initial matter, the Court notes that defendants’ requests for postacquisition
financials are comprised of 22 document requests (requests 9-20, 72-75, 92, and 94-98) and 2
interrogatories (7-8), and that most of these discovery requests do not relate to the consideration
UPMC exchanged for Altoona Regional. But even the requests that do relate to consideration are
The requests that could be construed as seeking information regarding
consideration—in the Court’s view, requests 12-14, 92, and 94-96—stray far beyond simply
seeking such information. For example, requests 12-14 seek “[a]ll documents reflecting analyses
of and communications related to accounting for . . . assets, liabilities, equity, revenue, and
Defendants gloss over why the exact source of UPMC’s consideration is relevant. As best the Court can
make out, defendants seek to corroborate plaintiffs’ allegations regarding UPMC’s investment
commitment. Although the exact source of funds would seemingly not affect damages, the Court
recognizes that plaintiffs’ allegations regarding UPMC’s investment commitments sufficiently place this
topic at issue for discovery to be proper.
expenses, including but not limited to all audited and unaudited financial statements and
underlying work papers, schedules, communications, and analyses, from 2008 to the present” of
UPMC, UPMC Altoona, and Altoona Regional. (ECF No. 56-1 ¶¶ 12-14.) Request 94 seeks “[a]ll
documents and communications related to . . . working capital and cash flows from 2008 to the
present” for UPMC Altoona and Altoona Regional. (Id. ¶ 94.) And request 96 seeks “[t]he general
ledger and all documents reflecting general ledger data”—in other words, the record reflecting
every financial transaction—of UPMC, UPMC Altoona, and Altoona Regional from 2008 to now.
(See id. ¶ 96.) Defendants argue that they need “[t]argeted documents reflecting how assets,
revenue, liabilities, and cash have flowed between UPMC and [UPMC] Altoona” (ECF No. 66 at
3) to determine the consideration UPMC paid for Altoona Regional. But their definition of
“targeted documents” seemingly includes every single record prepared by the accounting
departments of both UPMC Altoona (and formerly Altoona Regional) and UPMC, plus every
underlying communication that went into those records, for the last nine years. Such a position
is untenable, and does not comport with the scope of discovery under the Federal Rules of Civil
Information sought to determine the amount UPMC actually paid for Altoona Regional—
and the source of funds—is certainly relevant.
That information would relate directly to
plaintiffs’ damages and their allegations regarding UPMC’s investment commitments, meaning
discovery of these topics is appropriate. But defendants’ requests far exceed these topics and are
not reasonably directed at discovering this information. The Court will therefore not order
plaintiffs to respond to defendants’ current requests that seek information about consideration.
Defendants may issue revised discovery requests that are actually targeted at determining the
amount UPMC paid for Altoona Regional, including the source of funds, to the extent plaintiffs
have not already produced such information in response to request 116. 5 And contrary to
plaintiffs’ arguments, defendants may discover the underlying financial records showing the
amounts UPMC paid for Altoona Regional and the source of funds. 6
But defendants’ consideration argument applies to only a small portion of the disputed
requests for postacquisition financials.
Defendants’ main argument why postacquisition
financials are relevant to causation and damages has to do with the calculation of damages for a
Defendants, quoting § 552B, assert that a plaintiff in a negligent-misrepresentation claim
is “entitled to recover ‘the pecuniary loss to him of which the misrepresentation is the legal
cause[,]” and that “[r]ecoverable ‘pecuniary loss’ includes the ‘difference between the value of
what he has received in the transaction and its purchase price or other value given for it.’” (ECF
No. 57 at 4.) Refreshingly, it appears that plaintiffs agree with this measure of damages. 7 (See
ECF No. 53 at 5 (“UPMC is entitled to damages ‘necessary to compensate [it] for the pecuniary
loss to [it] of which the misrepresentation is a legal cause, including (a) the difference between
If UPMC’s consideration for Altoona Regional includes postacquisition payments—monetary or
otherwise—the Court assumes that plaintiffs have produced this information to defendants or will do so
in response to request 116.
This does not mean defendants are entitled to all of plaintiffs’ financial records. But defendants need not
rely on plaintiffs’ summaries regarding consideration; discovery is not so restricted, and financial
information that falls within Rule 26(b)(1)’s scope is discoverable in its original form. Defendants are thus
entitled to plaintiffs’ financial records regarding UPMC’s consideration for UPMC Altoona.
Though it seems they may not think so; plaintiffs state that “CBIZ’s [sic] asserts that UPMC is only entitled
to recover its ‘actual loss,’” and appear to quibble with that purported assertion. (See ECF No. 61 at 2.) But
nowhere in their briefs do defendants argue that actual loss is the only recoverable loss. Defendants invoke
actual loss because that is what—according to them—the postacquisition financials are relevant to.
Defendants, like plaintiffs, rely on § 552B’s “pecuniary loss” standard for damages (see ECF Nos. 57 at 4, 53
at 5), and there is no indication of a true disagreement about whether this standard governs damages here.
the value of what [it] has received in the transaction and its purchase price or other value given
for it; . . .’” (quoting § 552B).) But defendants and plaintiffs disagree on two points regarding the
calculation of damages under this measure: (1) as of when value should be calculated, and (2) how
value should be calculated.
As of When Value Should Be Calculated
According to defendants, plaintiffs’ postacquisition financials, including information
about the acquisition’s effect on UPMC’s health-insurance business, are relevant to calculating
the value of what UPMC received in the transaction, namely UPMC Altoona. (ECF No. 57 at 410.) In response to this argument, plaintiffs assert that the value of what a plaintiff in a negligentmisrepresentation claim received is determined as of the closing date—not later—and that
postacquisition financials are therefore irrelevant to damages.
For the reasons discussed above, the Court agrees with the parties that § 552B controls
UPMC’s negligent-misrepresentation claim. Regarding as of when value is calculated under
§ 552B and for negligent-misrepresentation claims in general, plaintiffs have the better argument.
Generally, in a negligent-misrepresentation claim “[t]he value of the item acquired is . . .
determined by the market value at the time of the transaction.” Med. Consultants Network, Inc. v.
Cantor & Johnston, P.C., No. 99-cv-0528, 2001 WL 10788, at *2 (E.D. Pa. Dec. 27, 2000) (emphasis
added citing cases). This conclusion follows from both logic and case law. It follows logically
because “[m]aking the comparison after the plaintiff has had control of the company raises
serious causation questions. Is the company worth so little because it was worthless at the time
of the acquisition or because of events after the acquisition, unrelated to the defendants’ alleged
illegal conduct?” Id. at *3. Determining value after the time of acquisition would unmoor damage
calculations; how far past the acquisition does one look? Such a method of valuation makes little
sense if one seeks to determine the value of what a plaintiff should have received at an earlier
time. Furthermore, this method would always allow a defendant to argue that he caused no (or
less) harm. If a plaintiff’s business that was acquired on a misrepresentation failed, the defendant
could argue that his misrepresentation caused no harm because the business has no value now.
And if a plaintiff who acquired a business based upon a defendant’s misrepresentation managed
to turn that business into a successful enterprise despite the misrepresentation, the defendant
could argue that his misrepresentation caused no—or less—harm because the business’s value
now was high. That is not how proper valuation should be determined.
Case law reinforces this conclusion. See Med. Consultants, 2001 WL 10788, at *2 (“The value
of the item acquired is generally determined by the market value at the time of the transaction.”)
(citing cases). Valuation at the time of the transaction is common in analogous causes of action
as well. Under Pennsylvania law, the standard of damages for both fraud and fraudulentmisrepresentation claims are similar to the standard of damages for negligent-misrepresentation
claims, see Advance Capital Partners, LLC v. Rossmann, No. 09-cv-3467, 2011 WL 5428554, at *11
(E.D. Pa. Nov. 9, 2011), and “[a]ctual value in a fraud case is generally ‘determined as of the time of
the transaction.’” Harnish v. Widener Univ. Sch. of Law, 833 F.3d 298, 307 (emphasis added) (quoting
Kaufman v. Mellon Nat’l Bank & Trust Co., 366 F.2d 326, 331 (3d Cir. 1966)). See also Tilghman v.
Dollenberg, 213 A.2d 324, 326 (Pa. 1965) (“‘The measure of damages in an action of deceit for fraud
in the sale of stock is * * * the difference between what the plaintiff was induced to pay for the
stock and its actual value at the time of the purchase.’” (quoting Curtis v. Buzard, 98 A. 777, 778
(Pa. 1916)); Neuman v. Corn Exch. Nat. Bank & Trust Co., 51 A.2d 759, 766 (Pa. 1947) (“the measure
of damages in an action for deceit in the sale of property is . . . the difference between the real, or
market, value of the property at the time of the transaction and the higher, or ficticious [sic], value
at which it was purchased” (citation and quotation marks omitted)); Sands v. Forrest, 434 A.2d 122,
124 (Pa. Super. Ct. 1981) (“[I]n an action for fraud and deceit the measure of damages is the
difference in value between the real, or market, value of the property at the time of the transaction
and the higher, or fictitious, value which the buyer was induced to pay for it.” (emphasis added)
(citing cases)). Put simply, the proper moment of valuation in a negligent-misrepresentation
claim is as of the time of the transaction. And subsequent events are generally not relevant to the
asset’s value. Cf. Harnish, 833 F.3d at 307 n.3 (“As a loose analogy, a lottery ticket’s actual value
at sale does not retroactively plummet to zero the moment a purchaser loses or skyrocket the
moment a purchaser wins.”).
There is a narrow exception to the general rule of valuation at the time of the transaction.
This exception is noted in comment c of the Restatement (Second) of Torts § 549 8: “the price that
determines the value of the article is not necessarily the price that it would bring at the time the
sale is made.” Defendants make much of this language, but omit its full context. The full
paragraph provides as follows:
c. Value, how ascertained. In a sales or exchange transaction the loss
for which the recipient of a fraudulent misrepresentation is entitled
to recover is usually the difference between the price paid or the
value of the thing given in exchange and the value of the thing
acquired. The value of the article is normally determined by the
price at which it could be resold in an open market or by private
sale if its quality or other characteristics that affect its value were
known. However, the price that determines the value of the article
Section 549 governs damages for fraudulent-misrepresentation claims, but because the measure of
damages for negligent and fraudulent misrepresentation are the same, “comments a to f under § 549 are
. . . applicable to [§ 552B], so far as they are pertinent.” § 552B cmt. a.
is not necessarily the price that it would bring at the time the sale is
made. In many cases this price is due to the widespread belief of
other buyers in misrepresentations similar to that made to the
person seeking recovery, as when market price of securities, such
as bonds or shares, is the result of widely spread
misrepresentations of those who issue or market them. The fact that
the market price is inflated or depressed by the misrepresentations is the
important factor making the price fictitious; it is, therefore, immaterial
that the inflated or depressed price does or does not result from the
misrepresentations of the same person who made the
misrepresentation on which the person seeking recovery relied. In
this case if the recipient of the misrepresentation, in reliance upon
it, retains the securities either as a permanent or temporary
investment, their value is determined by their market price after the
fraud is discovered when the price ceases to be fictitious and
represents the consensus of buying and selling opinion of the value
of the securities as they actually are. If the plaintiff has resold the
securities in the interim, however, his loss is the difference between
the price paid and that received.
§ 549 cmt. c (emphasis added). As this comment explains, the exception applies when the price
at the time of the transaction is somehow fictitious—like in cases of widespread fraud on the
market. 9 In such cases, the “real” price at the time of purchase is fictitious because that price itself
is a product of the misrepresentation. Valuation at the time of the transaction would thus be an
inaccurate measure—meaning it is necessary to look beyond the time of the transaction to
The two cases defendants cite for the proposition that assets are sometimes valued posttransaction actually illustrate this animating fictitious-price principle, although neither case
See Harnish, 833 F.3d at 307 n.2 (“To the extent that the ‘market’ price at the time of the transaction might
itself be inflated due to widespread dissemination of the misrepresentation, one must ascertain the fair
price that would be paid if the broader market knew the truth. (citing § 549 cmt. c)); Med. Consultants, 2001
WL 10788, at *2 (“Only in special circumstances, like market inflation or depression, is the value of an article
not determined by its market value at the time of acquisition.” (footnote omitted)); Neuman, 51 A.2d at 76667 (“‘[W]hen the market price is unnaturally inflated by unlawful and fraudulent practices, it cannot be the
true means of ascertaining what is just compensation’.” (citation omitted)).
involved claims similar to negligent misrepresentation. See Taylor v. KeyCorp, 680 F.3d 609, 61314 (6th Cir. 2012) (holding in ERISA case that “[w]hen a plaintiff alleges that the withholding of
information affected share prices, ‘the appropriate measure of damages [is] the difference
between the investment as taken and the investment as it would have been if not tainted by
withheld information.’” (citation omitted)); In re Boston Scientific Corp. ERISA Litig., 254 F.R.D. 24,
31 (D. Mass. 2008) (“If Boston Scientific stock was higher than it ‘should have been’ throughout
the class period, then Plaintiffs made a larger profit than they ‘should have’ earned when they
cashed in their old shares.”). These cases do not, however, lend support for the notion that posttransaction valuation is appropriate here.
Nor do the cases cited in defendants’ opening brief on this point lend any support. None
involved similar claims and the damages issues they addressed are inapposite.
Organization, Inc. v. Frick Transfer, Inc., 564 F. App’x 649 (3d Cir. 2014), was a breach-of-contract
case, and—contrary to defendants’ assertion—damages were not calculated by examining the
value of the assets at the time of judgment. The district court calculated damages by looking to
the per-unit price plaintiff originally paid for the products and the Third Circuit affirmed that
calculation. See id.; Fishman Org., Inc. v. Frick Transfer, Inc., No. 11-cv-4598, 2013 WL 1655984, at
*3-4 (E.D. Pa. Apr. 17, 2013). Blum v. Witco Chemical Corp., 829 F.2d 367 (3d Cir. 1987), was an agediscrimination suit under the ADEA, and although the court examined and calculated damages
incurred after plaintiffs’ terminations, that was proper because such damages can be a component
of an ADEA claim—this is called front-pay. Fariss v. Lynchburg Foundry, 769 F.2d 958 (4th Cir.
1985), was likewise an ADEA case. The court did examine plaintiffs’ finances at the time of
judgment, but did so because—under his ADEA claim—it was proper to offset his pension
benefits from his damages. LaSalle Talman Bank F.S.B. v. United States, 317 F.3d 1363 (Fed. Cir.
2003), was a breach-of-contract case where postbreach financials were relevant to damages
because they related to plaintiffs’ duty to mitigate. And the premise defendants cite Levy v.
Schmidt, 573 F. App’x 98 (3d Cir. 2014), for—that past experience of an ongoing, successful
business can be used to calculate future performance—is obviously correct, but it has no bearing
on whether post-transaction valuation is appropriate in a negligent-misrepresentation claim.
Defendants do not argue and there is no indication that the market value of Altoona
Regional at the time of the acquisition would somehow be fictitious. That narrow exception to
the appropriate time of valuation in negligent-misrepresentation claims therefore does not apply.
This means that the value of what UPMC received—Altoona Regional—is to be determined as of
the closing date of the acquisition.
How Value Should Be Calculated
Defendants argue in the alternative that, even if value must be determined as of the closing
date, postacquisition financials are still relevant to determining Altoona Regional’s value. Under
this line of reasoning, defendants essentially seek the postacquisition financials to backtrack and
value Altoona Regional as of the closing date. This argument also does not justify discovery of
plaintiffs’ postacquisition financials. Although postacquisition financials are marginally relevant
to determining Altoona Regional’s value as of the closing date, discovery of such records is
inappropriate because it is disproportional to the needs of this case.
Plaintiffs’ postacquisition financials are clearly relevant to some extent; if all of plaintiffs’
pre-acquisition financial records were destroyed, then its current financials would allow us to
backtrack and estimate Altoona Regional’s value at the time of the acquisition. Postacquisition
financials are thus relevant to value, and that remains true even when more-recent records do
exist. But the same thing can be said for Altoona Regional’s financial records from any year. If
no other records existed, then Altoona Regional’s records from, for example, 2003 would at least
allow us to estimate—based on market factors and making certain assumptions—what its value
would or could be in 2013. But it would certainly be odd if defendants sought financial records
from 2003 to determine Altoona Regional’s value as of 2013 if all records from 2003 through the
present were intact. It would not be reasonable based upon lack of relevancy.
That hypothetical situation is similar to what defendants seek to do here. There is simply
no need to backtrack from plaintiffs’ postacquisition financials to value Altoona Regional as of
the closing date. Valuing Altoona Regional as of the closing date is properly done through
reference to Altoona Regional’s financials as of, and prior to, the closing date. Postacquisition
financials would only be somewhat relevant to Altoona Regional’s value as of the closing date,
yet the burden of complying with those requests—22 extensive requests for documents spanning
four years—appears considerable. 10 Half of those 22 requests (requests 9-16, 35, 72-73, and 92)
seek “all documents reflecting analyses of and communications related to” various financial
metrics from the acquisition through the present. (See ECF No. 56-1.) The other half use different
language but are similarly broad. Overall, defendants’ requests for postacquisition financials
would likely require plaintiffs to locate, review, and produce thousands of documents. And these
documents would be only marginally relevant to Altoona Regional’s value as of the closing date.
Defendants correctly note that a party “cannot avoid . . . specific [discovery] requests by making
conclusory statements about burden and proportionality.” (ECF No. 66 at 2.) But a party’s lack of
specificity regarding burden does not mean the Court must close its eyes when the burden is apparent from
the discovery requests.
Defendants are entitled to extensive discovery regarding Altoona Regional’s financials as
of and prior to the closing date in order to determine its value. But plaintiffs’ postacquisition
financials are only marginally relevant on this point, and this marginal relevance does not justify
defendants’ discovery requests. Such discovery is thus beyond the scope of allowable discovery
under the Federal Rules of Civil Procedure.
Defendants next argue that plaintiffs’ postacquisition financials are relevant to whether
UPMC reasonably relied on defendants’ financial projections. (See ECF No. 60 at 6-7.) Because
defendants again do not connect these arguments to specific discovery requests, the Court will
discuss these arguments generally in an attempt to clarify the scope of allowable discovery.
Defendants explain that UPMC merged Altoona Regional’s pension plan with UPMC’s
own pension plan in December 2014, and that UPMC’s pension plan was less expensive than
Altoona Regional’s plan—meaning this merger likely reduced plaintiffs’ pension liabilities.
Defendants posit that UPMC likely factored the reduction of Altoona Regional’s pension
liabilities into UPMC’s strategic plan for the acquisition. But the next part of this argument makes
little sense. Defendants argue that
[p]ostacquisition data regarding this reduction in pension liability
. . . is relevant to whether UPMC in fact relied on Mr. Ketzner’s
projection to any material degree. It is also relevant to whether Mr.
Ketzner’s projection caused the acquisition, when UPMC
strategically planned to eliminate certain of that projected liability
in any event.
(Id. at 6.) The Court does not follow this argument. Yes, information that UPMC—as of or before
the closing date—intended to reduce Altoona Regional’s pension liabilities upon acquiring it
could tell us something about UPMC’s reliance on defendants’ alleged projections.
information could make it more likely that UPMC would have acquired Altoona Regional
regardless of defendants’ projections. But again, to be relevant such information would have to
relate to UPMC’s plans as of or before the closing date. Data regarding this reduction in pension
liabilities itself—which occurred in December 2014—would tell us nothing about whether UPMC
relied on Ketzner’s alleged projections in acquiring Altoona Regional in July 2013. Nor would
such postacquisition data tell us anything about whether Ketzner’s alleged projections caused the
acquisition. Thus, defendants’ reliance argument does not justify the discovery they seek.
But reliance is an element of a negligent-misrepresentation claim, and information that is
actually relevant to reliance would normally be discoverable. And as defendants point out,
postacquisition information could be relevant to reliance; “UPMC’s financial analyses and reports
after the transaction . . . may . . . discuss UPMC’s valuation of and reasons for purchasing Altoona
[Regional].” (ECF No. 60 at 3.) To the extent plaintiffs’ analyses and reports relate to plaintiffs’
reliance, defendants are entitled to the production of such documents.11 And because the Court
discerns no specific discovery requests that explicitly address reliance, it will allow defendants to
issue revised discovery requests that are actually targeted at this issue.
As for postacquisition data regarding plaintiffs’ pension-plan merger, such information is
discoverable for a different reason than that it is relevant to reliance. Plaintiffs’ claims are based
on their allegation that defendants understated Altoona Regional’s pension liabilities, and—
although defendants do not argue this—information about what happened to those liabilities is
Though—again—this does not mean that defendants are entitled to all of plaintiffs’ postacquisition
directly relevant to “pecuniary loss suffered otherwise as a consequence of the plaintiff’s reliance
upon the misrepresentation.” § 552B(1)(b). And plaintiffs appear to recognize that information
about their pensions is relevant. They point out that to determine UPMC’s strategic plan for the
acquisition and whether UPMC contemplated merging pension plans, defendants need only look
to UPMC’s actual strategic plan for the acquisition. Plaintiffs represent that they are in the process
of producing this plan to defendants. (See ECF No. 67 at 7.) Additionally, plaintiffs represent
that “UPMC has already agreed to produce information on what happened to the Altoona
[Regional’s] pension liabilities post-merger, and [that UPMC] has also agreed to produce all
documents which support [plaintiffs’] damages claim.” (Id.)
It thus seems that defendants will receive all the information they could want regarding
plaintiffs’ pension plans and the issue of damages. The Court notes, however, that defendants
are not limited to the specific documents plaintiff has chosen to provide in their discovery of these
issues. If other documents or information would be relevant to plaintiffs’ pensions or their
damages claim, and discovery of such information comports with this opinion, then defendants
are allowed to request that information.
Plaintiffs’ Duty to Mitigate
Though they do not elaborate much on this point, defendants’ final argument why
postacquisition financials are discoverable is that these records are relevant to plaintiffs’ duty to
mitigate. Defendants assert that UPMC has a duty to mitigate damages and argue that they are
entitled to discovery of postacquisition documents on that issue as well on other, unspecified
defenses. (ECF No. 60 at 6-7.)
It is true that under Pennsylvania law, as a general matter, “‘one injured by the tort of
another is not entitled to recover damages for any harm that he could have avoided by the use of
reasonable effort or expenditure after the commission of the tort.’” Yost v. Union R.R. Co., 551
A.2d 317, 322 (Pa. Super. Ct. 1988) (quoting Restatement (Second) of Torts § 918(1)). There
appears to be scarce authority under Pennsylvania law regarding how this duty applies in the
context of misrepresentation claims, but the Court sees no convincing reason—and plaintiffs have
not argued—that the duty to mitigate damages would not apply to such claims. Assuming that
this duty applies, defendants are correct that they are entitled to discovery on plaintiffs’
mitigation efforts. And such discovery necessarily implicates postacquisition financials.
But this does not mean that defendants have free rein to discover all of plaintiffs’
postacquisition financials. Additionally, the Court discerns no specific discovery requests that
seek documents regarding mitigation efforts, and defendants again do not connect this argument
to specific discovery requests. The Court therefore holds only that postacquisition financials
regarding plaintiffs’ duty to mitigate are discoverable.
Documents & Information Regarding Other Acquisitions by UPMC of
Hospitals with Defined-Benefit Pension Plans (Requests 35-44, 56, and
78-81, as well as Interrogatory 10)
In their opening brief, defendants state that they also seek information regarding other
acquisitions by UPMC of hospitals with defined-benefit pension plans. Defendants explain that
they agreed to narrow the scope of these requests at a June 7, 2017 meeting with plaintiffs and
state that they now seek the following: (1) deal documents (such as merger agreements), (2) board
presentations from before and after the acquisition that relate to the acquisition, (3) documents
sufficient to show the projected financial performance and actual performance of the acquired
entity, (4) documents sufficient to show the projected rate of return (“ROR”) and actual ROR of
the acquired entity, and (5) due-diligence reports about the defined-benefit pension plans and
analyses of the plans during due diligence. Defendants note that they seek similar documents for
UPMC’s acquisition of Lee Hospital in 1998.
Plaintiffs elaborate a bit on what acquisitions these specific discovery requests would
cover, namely UPMC’s acquisitions of Lee Hospital in 1998, Mercy Hospital in 2008, and Hamot
Medical Center in 2011, as well acquisitions that postdate UPMC’s acquisition of Altoona
Regional. (See ECF No. 61 at 6 n.4.) Those include UPMC’s acquisitions of Susquehanna Health
in 2016, Jameson Health System in 2016, WCA Hospital in 2016, and PinnacleHealth (currently in
According to defendants, the information they seek about these acquisitions is
discoverable because it is relevant to causation and reliance. As for causation, defendants point
out that plaintiffs allege that UPMC “would never have completed the acquisition [of Altoona
Regional]” (ECF No. 1 ¶ 49) but for defendants’ pension valuations, and assert that this allegation
places UPMC’s “standard procedure for assessing potential acquisitions” (id.) at issue. And as
for reliance, defendants argue that the scope of UPMC’s due diligence regarding pension
liabilities in similar acquisitions is relevant to UPMC’s alleged reliance on defendants’ pension
valuations. Plaintiffs offer two arguments in response, namely that information about other
acquisitions is not relevant to reliance and that the requests are overbroad. As for defendants’
causation argument specifically, plaintiffs leave this largely unaddressed.
Defendants have the better argument on this dispute. A negligent-misrepresentation
claim requires both that the plaintiff’s reliance on the misrepresentation was justified and that the
misrepresentation caused the loss. See § 552; see also Excavation Techs., 936 A.2d at 115-16 (citing
§ 552 and describing elements for negligent-misrepresentation claim).
Turning first to the
[a]s the words of the phrase imply, justifiable reliance comprises two
elements: (1) the plaintiff must in fact rely on the information; and
(2) the reliance must be reasonable. The justifiableness of the
reliance is judged in light of the plaintiff’s intelligence and
experience. For purposes of the tort of negligent misrepresentation,
reliance is unjustified when the relying party is negligent.
Scottish Heritable Tr., PLC v. Peat Marwick Main & Co., 81 F.3d 606, 615 (5th Cir. 1996) (footnotes
and internal citation omitted). Although the court in Scottish Heritable was applying Texas law,
this is of no real consequence; the court was applying § 552, which Texas has adopted, and
Pennsylvania courts appear to be in agreement with this standard. See Am. Metal Fabricators Co.
v. Goldman, 323 A.2d 891, 894 (Pa. Super. Ct. 1974) (“[o]ne who has special knowledge, experience,
and competence” might not be reasonable in relying on the statements of another “for which the
ordinary man might recover” (citation omitted)); Mellon Bank Corp. v. First Union Real Estate Equity
& Mortg. Invs., 951 F.2d 1399, 1412 (3d Cir. 1991) (considering parties’ degree of sophistication in
holding that plaintiff’s reliance on promise was not reasonable); Greenberg v. Tomlin, 816 F. Supp.
1039, 1056 (E.D. Pa. 1993) (holding in context of fraudulent-misrepresentation claim that,
“[a]lthough there are no hard and fast definitions of what constitutes reasonable reliance, the
degree of sophistication of the parties and the history, if any, behind the negotiation process are
relevant factors in ascertaining reasonableness”). Whether UPMC’s reliance on defendants’
alleged misrepresentations was justifiable thus implicates UPMC’s standard due diligence for
acquisitions. If, for example, UPMC failed to follow its usual standards for acquisitions when it
acquired Altoona Regional, it might be that UPMC was unreasonable in relying on defendants’
Defendants are thus allowed to examine UPMC’s standard
Likewise, other acquisitions (and the degree to which pension liabilities factored into the
decisions to undertake those acquisitions) are relevant to whether defendants’ alleged
misrepresentations were the but-for cause of UPMC’s acquisition of Altoona Regional—as
plaintiffs allege. Defendants accurately explain why this is so; “[f]or example, if the financial
performance of Altoona [Regional] would have met the ‘standard’ metrics applied by UPMC in
other acquisitions regardless of the pension valuation, this evidence could refute UPMC’s
allegations of causation and injury.” (ECF No. 57 at 11.)
Information regarding other acquisitions by UPMC of hospitals with defined-benefit
pension plans is thus relevant to both reliance and causation. And plaintiffs’ argument that
production of this information would be overly burdensome is unpersuasive; the importance of
this information to defendants’ case is apparent and considerable, yet plaintiffs explain only
vaguely the burden that production would impose. Although the Court recognizes that this type
of discovery will likely prove to be voluminous and expensive, plaintiffs’ vague explanations are
relevance/proportionality calculus thus supports production.
Nevertheless, it does not appear that all information about other transactions that
defendants seek is relevant.
Defendants have not explained how postacquisition board
presentations regarding other acquisitions would provide insight into causation and reliance
here, nor have they explained how information about acquired entities’ postacquisition financial
performance would be relevant.
The relevance of pre-acquisition deal documents, board
presentations regarding proposed acquisitions, and due-diligence reports of acquisitions,
however, is clear. That information is therefore discoverable.
This leaves a temporal issue. Plaintiffs argue that information regarding transactions that
significantly predate the acquisition of Altoona Regional, and information regarding transactions
that postdate it, would provide scant insight into UPMC’s standard procedures for acquisitions
at the time it acquired Altoona Regional. Defendants offer no specific argument in response to
plaintiffs’ temporal argument, but do argue—in their opening brief—that UPMC’s 1998
acquisition of Lee Hospital is particularly relevant to this case because Ketzner annually
performed the pension valuations for Lee Hospital when UPMC acquired it. According to
defendants, information about the Lee Hospital acquisition “may show the extent of UPMC’s
reliance on Mr. Ketzner’s reports and whether UPMC had reason to undertake its own
independent valuation” of, presumably, Altoona Regional’s pension liabilities. (ECF No. 57 at
13.) Defendants also assert that they plan to “present evidence that UPMC engaged in far greater
due diligence of the pension liabilities of Lee Hospital than it did for Altoona [Regional],” and
argue that they are allowed to develop this defense through discovery from UPMC. (Id. at 14.)
The time that has passed since UPMC’s acquisition of Lee Hospital—19 years (or 15 years
between then and UPMC’s acquisition of Altoona Regional)—both detracts from the relevance of
information about that acquisition and likely increases the burden that discovery of such
information would impose. The information appears less relevant because UPMC’s standard
procedures for acquisitions—including the metrics applied—are unlikely to have remained static
between 1998 and 2013. And the burden of production is likely increased because the production
of older documents takes more work; email and electronic records were not yet ubiquitous in the
workplace in 1998, meaning any records of the Lee Hospital acquisition likely exist only in paper
format—requiring manual retrieval, review, scanning, coding, and other steps.
information about UPMC’s acquisition of Lee Hospital seems particularly relevant here because
it involved valuations by one of the defendants in this case, Ketzner. Whether UPMC was
reasonable in relying on Ketzner’s valuations in 2013 can be informed by the extent to which
UPMC relied on Ketzner’s valuations in the past, how accurate those valuations were, as well as
how UPMC viewed them. And that remains so even if the valuations were prepared 15 years
before UPMC acquired Altoona Regional. Therefore, while the Court will not allow a far-ranging
search through all information regarding the 1998 Lee Hospital acquisition, the Court will allow
discovery of any documents and reports prepared by Ketzner from 1995 to 1998 relating to the
Lee Hospital acquisition and any UPMC correspondence or documents from 1995 to 1998 that
discuss or reference Ketzner or Ketzner-prepared documents.
As for information regarding UPMC acquisitions that significantly predate the acquisition
of Altoona Regional, or information regarding acquisitions that postdate it, the Court agrees that
production of such information is not appropriate because it is significantly less relevant. Thus,
the relevance/proportionality calculus is different for information about these acquisitions. As
explained, older acquisitions are less likely to provide insight on UPMC’s standard procedures
for acquisitions at the time it acquired Altoona Regional. And information about transactions
that postdate the Altoona Regional acquisition would also not shed as much light on UPMC’s
earlier standard procedures for acquisitions or on how much UPMC relied on actuarial
valuations. Indeed, UPMC’s experience in acquiring Altoona Regional likely changed those
standard procedures. On the proportionality side of the calculus, the extensive nature that
discovery of these acquisitions would likely entail seems burdensome when compared against
the lower relevance. The Court therefore holds that plaintiffs need produce only relevant
information about acquisitions that occurred between 2008 and UPMC’s acquisition of Altoona
Regional in 2013.
Pension-Valuation Reports & Engagement Letters (Requests 69 and 84)
Lastly, defendants seek pension-valuation reports for UPMC’s own pension plans—other
than reports for Altoona Regional’s plans—as well as UPMC’s engagement letters for the
actuaries that prepared those reports, all for the period of 2010 to 2016. Defendants argue that
these documents are discoverable because they are relevant to UPMC’s reliance and to UPMC’s
allegation that “CBIZ owed substantial duties to UPMC when providing its report to Altoona
[Regional].” (ECF No. 57 at 14.) Defendants base these arguments on their belief that UPMC’s
actuaries likely included language in their valuation reports that limited the intended use of those
reports to their principal (here, UPMC), and disclaimed that the reports were intended to be used
by third parties.
In response, plaintiffs state that defendants’ request for engagement letter is a non-issue
because UPMC has already agreed to produce its engagement letters by its contracted actuary,
Aon Hewitt, for engagements related to the Altoona Regional acquisition, the discovery of the
Altoona Regional pension-valuation errors, and UPMC’s pension plan after the pension-plan
merger with UPMC Altoona’s plan. Plaintiffs also allege that Ketzner’s valuation of Altoona
Regional’s pension plans contained no disclaimer regarding intended use, and argue that any
disclaimers in engagement letters of UPMC’s other actuaries are therefore irrelevant.
The Court agrees with defendants. Whether UPMC’s alleged reliance on Ketzner’s
valuation was justified is informed by UPMC’s experience with other actuaries and their
valuations, as well as whether such valuations—or the engagement letters for the actuaries—
contained disclaimers on the valuations’ intended use. If it is the case that these engagement
letters and valuations typically included such a disclaimer—and UPMC was aware of that fact—
this may make it less likely that UPMC’s reliance on a valuation that was allegedly not intended
for its use was reasonable. And that remains true even if Ketzner’s valuation did not include a
disclaimer; if these disclaimers were standard, and UPMC was aware of that, a factfinder may
find it less likely that UPMC’s reliance on Ketzner’s report was justified.
engagement letters for and pension-valuation reports by other actuaries are relevant. And unlike
defendants’ request for postacquisition financials, it does not appear that production of UPMC’s
engagement letters for and pension-valuation reports by other actuaries would be unduly
burdensome. These documents are therefore discoverable.
As for the temporal scope—2010 to 2016—the Court notes, just like it did with regard to
defendants’ requests for postacquisition financials, that documents that postdate UPMC
acquisition of Altoona Regional are less probative than those that predate that acquisition. The
question here is whether UPMC’s alleged reliance on Ketzner’s valuation at the time of the
acquisition was justified. That engagement letters and reports by UPMC’s actuaries after that
acquisition included certain disclaimers tells us little about whether those disclaimers were
standard, or known to UPMC, before the acquisition. But it does move the needle somewhat on
that question, meaning postacquisition documents are marginally relevant. Although plaintiffs
request a “more circumscribed time period,” namely 2012 to 2014, they have not provided any
substantive grounds why 2010 to 2016 would be burdensome or disproportional here. The Court
thus holds that the temporal scope of 2010 to 2016 is appropriate.
Plaintiffs’ Motion for Protective Order
In the discussion above, the Court has addressed most of the arguments raised in
plaintiffs’ motion for protective order and incorporated them into its analysis of the allowable
scope of discovery for the disputed discovery requests. Thus, the Court need not separately
address plaintiffs’ motion for protective order. But there is one argument raised in plaintiffs’
motion that the Court has not yet addressed, namely plaintiffs’ offset argument. The Court now
turns to that argument.
Plaintiffs assert that “CBIZ seeks to defend its malpractice by claiming that [UPMC]
Altoona benefited by being acquired such that any harm the malpractice caused has been offset,”
and that “CBIZ also contends that benefits UPMC may have realized from the Acquisition may
be considered when evaluating UPMC’s ‘actual injury.’” (ECF No. 53 at 3.) And according to
plaintiffs, “Pennsylvania law makes clear that how the transaction turned out for UPMC and
[UPMC] Altoona has no bearing on Plaintiffs’ breach of contract, professional negligence, or
negligent misrepresentation claims against CBIZ because CBIZ cannot offset [UPMC] Altoona’s
or UPMC’s damages with benefits realized as a result of the Acquisition.” (Id. at 3-4 (citation
omitted).) Plaintiffs argue that this offsetting rationale is the real reason why defendants seek
plaintiffs’ postacquisition financials, and that this is improper under Pennsylvania law.
Defendants, on the other hand, assert that they do not seek to offset plaintiffs’ damages. But
defendants also contend that—even if they did seek to argue offsetting—they would be entitled
to discovery of plaintiffs’ postacquisition financials to determine whether any benefits were
conferred on UPMC.
Pennsylvania courts—including the Pennsylvania Supreme Court—have applied § 920 of
the Restatement (Second) of Torts in analyzing offset arguments. See Ellis v. Sherman, 515 A.2d
1327, 1329 (Pa. 1986) (applying § 920); Gorski v. Smith, 812 A.2d 683, 709-10 (Pa. Super. Ct. 2002)
(same). Section 920 provides that
[w]hen the defendant’s tortious conduct has caused harm to the
plaintiff or to his property and in so doing has conferred a special
benefit to the interest of the plaintiff that was harmed, the value of
the benefit conferred is considered in mitigation of damages, to the
extent that this is equitable.
Comment d to § 920 elaborates on the causation requirement for this rule; “[u]nder the rule stated
in this Section[,] to justify a diminution of damages[,] the benefit must result from the tortious
conduct.” Additionally, comment d provides also—as plaintiffs point out—that, “if the plaintiff
is entitled to claim damages based upon a valuation of property at a particular time, the damages
are not reduced by a subsequent beneficial event.”
Under § 920, plaintiffs have the better argument here. For the reasons discussed above,
defendants are not entitled to discovery of plaintiffs’ postacquisition financial information on the
grounds of causation and damages, reliance, or plaintiffs’ duty to mitigate. And the offsetting
argument is too attenuated to justify the extensive discovery of plaintiffs’ postacquisition
financials that defendants propose. As the Court has discussed, UPMC is entitled to claim
damages for its negligent-misrepresentation claim based on a valuation of Altoona Regional at a
particular time—namely the closing date. This means the language from comment d applies, and
damages would not be reduced by a subsequent beneficial event. Moreover, the purported
benefits that defendants’ requests seem directed at—UPMC Altoona’s revenues, the acquisition’s
effects on UPMC’s health-insurance business, and UPMC’s overall gain from the acquisition—
appear to be significantly removed from the harm plaintiffs allege resulted from defendants’ acts,
namely UPMC assuming responsibility for Altoona Regional’s pension liabilities. Put simply, it
seems dubious that defendants’ alleged tortious conduct conferred those benefits on plaintiffs.
Information about these areas therefore lacks necessary relevancy and is thus inappropriate for
Plaintiffs’ motion for protective order and defendants’ motion to compel will both be
denied in part and granted in part as provided in the foregoing discussion. A corresponding
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
UPMC d/b/a UNIVERSITY OF
PITTSBURGH MEDICAL CENTER, and
UPMC ALTOONA f/k/a ALTOONA
REGIONAL HEALTH SYSTEM,
Case No. 3:16-cv-204
JUDGE KIM R. GIBSON
CBIZ, INC., CBIZ BENEFITS &
INSURANCES SERVICES, INC., and
JON S. KETZNER,
NOW, this 15th day of September 2017, upon consideration of plaintiffs' motion for
protective order (ECF No. 53) and defendants' motion to compel (ECF No. 56) and for the reasons
in the memorandum opinion accompanying this order, it is HEREBY ORDERED that both
motions are DENIED IN PART and GRANTED IN PART as follows:
Defendants may issue to plaintiffs new discovery requests that are reasonably
directed at information about the amount UPMC paid for Altoona Regional as well
as the source of funds for those payments. Defendants are allowed to discover the
underlying financial records for this information and are not restricted to
discovery of documents sufficient to show payments.
Defendants may also issue to plaintiffs new discovery requests that are reasonably
directed at information about UPMC' s reliance on defendants' alleged
misrepresentations. Discoverable information on this point includes plaintiffs'
postacquisition financials-to the extent they are relevant to reliance-such as
analyses and reports that discuss UPMC's valuation of and reasons for purchasing
Defendants may discover postacquisition data regarding the pension-plan merger
of UPMC and UPMC Altoona.
Although plaintiffs appear already to have
produced information regarding this topic, if unproduced information would be
relevant to plaintiffs' pensions or their damages claim and the discovery of such
information comports with the memorandum opinion accompanying this order,
then defendants are allowed to request that information.
Plaintiffs shall produce to defendants pre-acquisition deal documents, board
presentations regarding proposed acquisitions, and due-diligence reports of
acquisitions for acquisitions that occurred between 2008 and UPMC' s acquisition
of Altoona Regional in 2013.
Plaintiff shall produce to defendants any documents and reports prepared by
Ketzner relating to the Lee Hospital acquisition from 1995 to 1998 and any UPMC
correspondence or documents that discussed or reference Ketzner or Ketznerprepared documents from 1995 to 1998.
Plaintiffs shall produce to defendants UPMC's engagement letters for and
pension-valuation reports by other actuaries from between 2010 and 2016.
Plaintiffs' Motion for Protective Order is granted to the extent not otherwise
covered in this Order and accompanying Memorandum Opinion.
BY THE COURT:
KIM R. GIBSON
UNITED STATES DISTRICT JUDGE
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