The City of Providence v. Buck Consultants, LLC
Filing
23
OPINION AND ORDER granting in part and denying in part 12 Motion to Dismiss for Failure to State a Claim; granting in part and denying in part 18 Motion to Dismiss for Failure to State a Claim. So Ordered by Judge William E. Smith on 8/9/13. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
)
)
Plaintiff,
)
)
v.
)
)
BUCK CONSULTANTS, LLC,
)
)
Defendant.
)
___________________________________)
THE CITY OF PROVIDENCE,
C.A. No. 13-131 S
OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
Before
(“Buck”)
the
Motion
Court
to
are
Defendant
Dismiss
(ECF
No.
Buck
Consultants,
12)
and
Dismiss Amended Complaint (ECF No. 18). 1
its
LLC’s
Motion
to
For the reasons set
forth below, those motions are GRANTED in part and DENIED in
part.
I.
Facts
The
motion
following
to
dismiss)
Amended Complaint.
facts,
which
assumes
to
be
Court
true,
(as
are
it
taken
must
from
on
a
the
Buck is the longtime pension actuary for
the City of Providence (“City”).
1
the
In early 2012, the City asked
After Buck’s initial motion to dismiss, Plaintiff City of
Providence (“City”) filed an Amended Complaint (ECF No. 16)
primarily directed at the Rhode Island False Claims Act count.
Pursuant to the parties’ stipulation (ECF No. 17), Buck’s first
motion to dismiss and the City’s opposition thereto remained
operative. Buck was provided the additional opportunity to file
a reply raising arguments regarding the Amended Complaint.
Buck to make various calculations regarding proposed changes to
its pension system.
calculate
the
More specifically, the City asked Buck to
savings
that
would
result
from
a
ten-year
suspension of cost of living adjustments (“COLA’s”).
Buck’s
projections,
the
City
passed
an
ordinance
Based on
to
suspend
COLA’s until the pension system reached a funding ratio of 70%.
The
City’s
retirees
and
unions
opposed
the
ordinance.
Litigation was initiated in state court, and, in an effort to
avoid this litigation, the City entered into negotiations with
employee
unions
and
retirees
regarding
the
pension
terms.
During these negotiations, Buck provided additional calculations
to the City of its projected savings under various scenarios,
almost all of which involved a ten-year COLA suspension.
In
connection with its services, Buck presented the City with five
claims for payment.
In reliance on Buck’s calculations, the
City reached a tentative agreement with its unions and retirees.
The
City
alleges
that,
when
first
confronted
with
discrepancies in its calculations, Buck admitted that its prior
projections had failed to account for the 2012 COLA, which had
already been paid.
This error caused the projected savings to
be overstated by $10 million.
The City claims that, had it
known that Buck’s calculations were incorrect, it “would never
have agreed with its union employees and retirees to the pension
modifications to which it is now bound.”
(Am. Compl. ¶ 5.)
The City subsequently brought suit against Buck for breach
of
contract,
breach
misrepresentation,
of
and
fiduciary
violation
duty,
of
negligence,
the
Rhode
negligent
Island
False
Claims Act.
II.
Discussion 2
“In
order
12(b)(6),
allows
a
the
to
survive
plaintiff
court
to
a
must
draw
motion
‘plead
the
[
to
]
dismiss
factual
reasonable
Ashcroft
2
v.
590
Iqbal,
F.3d
556
31,
U.S.
48
662,
(1st
678
Rule
content
that
inference
defendant is liable for the misconduct alleged.’”
Pereira-Castillo,
under
Cir.
(2009))
that
the
Sanchez v.
2009)
(quoting
(alteration
in
In support of its motions to dismiss, Buck has filed
various matters outside the pleadings, namely a statement by the
City’s Mayor, Buck’s 2012 Valuation Report, the Memorandum of
Understanding (“MOU”) between the City and its retirees, and the
transcript of the Superior Court Fairness Hearing. However, the
Court need not decide whether it may properly consider these
documents because none of them would change the result reached
in this case.
The Mayor’s statement and Fairness Hearing
transcript tend to indicate that the settlement was favorable to
the City, but they do not conclusively demonstrate that the
settlement was more favorable than the status quo, namely the
ordinance.
The 2012 Valuation Report is primarily offered to
contradict the City’s contention that, if Buck’s calculations in
years past had been more accurate, it would have contributed
more funds to the pension system. Because the Court finds that
the City’s “negotiation claim” survives the instant motions to
dismiss, it need not consider this alternative “underfunding
claim.”
Finally, the MOU, executed on May 22, 2012, does not
defeat the City’s claim.
The City alleges that Buck made
several calculations involving a ten-year COLA suspension prior
to that date.
Similarly, the fact that the agreement was not
approved by the Superior Court until April 12, 2013, after the
City discovered the alleged error, is not fatal. Buck fails to
dispute the City’s sensible assertion that it was not free to
breach the agreement prior to approval.
original).
as
true
In ruling on such a motion, the Court must “accept
all
the
factual
allegations
in
the
complaint
and
construe all reasonable inferences in favor of the plaintiff.”
Id.
at
41
(internal
citation
and
quotation
marks
omitted).
Indeed, “a well-pleaded complaint may proceed even if it strikes
a savvy judge that actual proof of those facts is improbable,
and that a recovery is very remote and unlikely.”
Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556 (2007) (internal citation
and quotation marks omitted). 3
A.
Causation and Damages
The City must establish both causation and damages in order
to recover for breach of contract, breach of fiduciary duty,
negligence,
or
negligent
misrepresentation.
See
Barkan
v.
Dunkin’ Donuts, Inc., 627 F.3d 34, 39 (1st Cir. 2010) (breach of
contract);
3
Lifespan/Physicians
Prof’l
Servs.
Org.,
Inc.
v.
While the heightened pleading standard set out in Rule
9(b) of the Federal Rules of Civil Procedure applies to the
City’s False Claims Act count, it does not apply to the City’s
other claims.
Rule 9(b) governs a claim “where the core
allegations effectively charge fraud.”
N. Am. Catholic Educ.
Programming Found., Inc. v. Cardinale, 567 F.3d 8, 15 (1st Cir.
2009). Thus, in order to determine whether the City’s breach of
contract, breach of fiduciary duty, negligence, and negligent
misrepresentation counts trigger Rule 9(b), “it is necessary to
examine the allegations for averments that [the defendant’s]
actions were knowing.”
Koch v. I-Flow Corp., 715 F. Supp. 2d
297, 304 (D.R.I. 2010). In the present case, the City expressly
disclaims any allegation “that Buck intentionally gave the City
incorrect calculations or that Buck otherwise acted knowingly.”
(Pl.’s Mem. of Law in Supp. of its Objection to Def.’s Mot. to
Dismiss 13, ECF No. 14-1.)
Combined Ins. Co. of Am., 345 F. Supp. 2d 214, 226 (D.R.I. 2004)
(negligent misrepresentation); English v. Green, 787 A.2d 1146,
1151 (R.I. 2001) (negligence); Chain Store Maint., Inc. v. Nat’l
Glass & Gate Serv., Inc., No. CIV.A. PB 01-3522, 2004 WL 877599,
at *13 (R.I. Super. Apr. 21, 2004) (breach of fiduciary duty).
Buck argues
that
the
City’s
allegations
on
these
issues
are
insufficient.
As a preliminary matter, Buck contends that the savings
ultimately realized from the settlement exceeded $199 million.
This total is significantly greater than the savings projected
by
Buck
during
the
City’s
negotiations.
However,
the
City
alleges that Buck admitted its failure to account for the 2012
COLA payments in making its calculations and that this error
resulted in a $10 million inflation in its savings estimate.
these
circumstances,
subsequent
it
calculations,
were inaccurate.
is
reasonable
which
predicted
to
infer
much
that
higher
In
Buck’s
savings,
This later-created data raises issues better
left to summary judgment or trial.
In
its
objection
to
Buck’s
motion
to
dismiss,
the
City
explains that the primary harm complained of stems from the fact
that
the
City
“agreed
to
certain
pension
changes
during
its
negotiations with the unions and retirees to which it would not
have otherwise agreed.”
(Pl.’s Mem. of Law in Supp. of its
Objection to Def.’s Mot. to Dismiss 16, ECF No. 14-1.)
In the
absence of any agreement, the previously enacted ordinance would
govern the City’s obligations to the pension system, unless and
until a court ruled otherwise.
It is reasonable to then infer
that the savings the City would have realized in this scenario
would
have
been
negotiated changes.
greater
than
those
realized
through
the
Indeed, the very purpose of negotiation is
to reach a compromise. 4
B.
Buck
Negligent Misrepresentation
also
raises
several
arguments
negligent misrepresentation claim.
regarding
the
City’s
First, it points out that
the alleged $10 million error reflected less than 1% of the
pension system’s total liabilities.
Buck argues that the City
could not justifiably rely on the accuracy of its calculations
to within such a small margin.
However, whether the City’s
reliance was justifiable “is a factual issue inappropriate for
4
Contrary to the City’s suggestions, however, the mere fact
that Buck may have overstated the City’s savings by $10 million
does not mean that the City suffered a loss of that amount. See
Tiboni v. Milliman, Inc., No. 1:08 CV 1642, 2010 U.S. Dist.
LEXIS 131896, at *26 (N.D. Ohio Aug. 10, 2010) (“There is no
causal connection between the Fund’s actual liability and the
amount recognized and reported on by [] its actuaries.”).
Indeed, because, according to the City, Buck’s initial estimate
was based on an error, the extra $10 million never actually
existed. Nonetheless, at the motion to dismiss stage, the Court
is not required to determine the precise amount of damages, nor
is the City’s arguable logical flaw in pleading fatal to its
complaint.
As previously noted, it is sufficient that the
allegations in the complaint create the reasonable inference
that the City suffered some harm as a result of Buck’s actions.
resolution on a motion to dismiss.”
In re TJX Cos. Retail Sec.
Breach Litig., 524 F. Supp. 2d 83, 92 (D. Mass. 2007), aff’d in
part,
564
F.3d
489
(1st
Cir.
2009).
Moreover,
mischaracterizes the magnitude of its alleged error.
Buck
While the
$10 million discrepancy constituted only a small percentage of
the system’s total liabilities, that is not really the point.
The City claims that the error was significant enough to affect
its decision to enter into an agreement with its unions and
retirees.
This is sufficient to survive a motion to dismiss.
Buck also contends that the City has failed to plead its
intent to induce action.
This argument is unavailing as well.
The Amended Complaint alleges that, in the actuarial opinions
provided to the City, Buck employee Philip Bonanno represented
that
he
was
a
(“Academy”).
member
of
the
American
Academy
of
Actuaries
It further alleges that, according to the Academy,
a statement of actuarial opinion is “an opinion expressed by an
actuary
in
the
course
of
performing
actuarial
services
and
intended by that actuary to be relied upon by the person or
organization to which the opinion is addressed.”
(Am. Compl. ¶
27
facts,
(emphasis
reasonable
to
in
original).)
infer
that
Buck
Based
on
intended
these
to
induce
the
it
is
City’s
reliance.
In a final attack on the negligent misrepresentation count,
Buck asserts that “[s]tatements of opinion cannot form the basis
for a misrepresentation claim.”
In re Frusher, 146 B.R. 594,
597
sub
(Bankr.
D.R.I.
1992),
aff’d
nom.
Frusher
v.
Robbins Ice Cream Co., 43 F.3d 1456 (1st Cir. 1994).
one
district
court
has
rejected
a
similar
BaskinHowever,
argument
that
“actuarial opinions are mere opinions that cannot be the basis
for a claim of misrepresentation.”
Walton Risk Servs., Inc. v.
Clarendon Am. Ins. Co., No. 01 C 0398, 2002 WL 31415769, at *6
(N.D. Ill. Oct. 25, 2002).
The court reasoned, “[t]he fact that
[the defendant] used actuarial tools and assumptions does not
excuse it from liability for negligent misrepresentation.”
The Walton court’s analysis is convincing.
Id.
The alleged error in
this case did not result from a failure to accurately predict
the
future.
Rather,
it
was
a
simple
mathematical
miscalculation.
C.
False Claims Act 5
The City’s claim under the Rhode Island False Claims Act
(“Act”)
relies
entirely
upon
a
“worthless
services”
theory.
Under this theory, a defendant violates the Act if “services
literally are not provided or the service is so substandard as
to be tantamount to no service at all.”
5
United States ex rel.
Given the paucity of caselaw interpreting the relevant
provisions of the Act, R.I Gen. Laws § 9-1.1-3(a)(1) and (a)(2),
the parties agree that the Court should look to cases involving
the functionally identical provisions of the federal False
Claims Act.
Compare R.I. Gen. Laws § 9-1.1-3(a)(1) and (a)(2)
with 31 U.S.C. § 3729(a)(1)(A) and (a)(1)(B).
Spay v. CVS Caremark Corp., 913 F. Supp. 2d 125, 158 (E.D. Pa.
2012) (quoting In re Genesis Health Ventures, Inc., 112 Fed.
App’x 140, 143 (3d Cir. 2004)).
The services provided by Buck
in the present case cannot fairly be characterized as worthless.
Even if Buck erred in its calculations, it at least provided the
City with a rough approximation of the savings that would be
achieved by a ten-year COLA suspension.
Dialysis
Clinic,
Inc.,
No.
See United States v.
5:09-CV-00710
(NAM/DEP),
2011
WL
167246, at *21 (N.D.N.Y. Jan. 19, 2011) (“Plaintiff does not
allege that defendant failed to provide any services to their
patients. Rather, plaintiff challenges the quality of care . . .
.
all
This allegation is not the equivalent of no performance at
and
category.”
thus,
does
(internal
not
fit
quotation
within
marks
the
worthless
omitted));
U.S.
services
ex
rel.
Sanchez-Smith v. AHS Tulsa Reg’l Med. Ctr. LLC, 754 F. Supp. 2d
1270, 1287 (N.D. Okla. 2010) (rejecting worthless services claim
where the defendant “provided well over fifty percent of the
required therapy hours for the patient identified as suffering
the most egregious violation”).
The Act also includes a scienter element, which requires
that a person act “knowingly.”
This term is defined to include
“deliberate ignorance” or “reckless disregard.”
§
9-1.1-3(b).
Throughout
the
Amended
R.I. Gen. Laws
Complaint
the
City
repeatedly alleges that Buck was instructed that the proposed
COLA suspension would be effective January 1, 2013.
Based off
these allegations, the City claims that Buck “knew or should
have known” that it calculated the prospective COLA suspension
using the incorrect date.
(Am. Compl. ¶ 72.)
This is the
language of negligence, and is insufficient to support a False
Claims Act claim.
See Mikes v. Straus, 274 F.3d 687, 703 (2d
Cir. 2001); Hagood v. Sonoma Cnty. Water Agency, 81 F.3d 1465,
1478 (9th Cir. 1996).
hold
water
because
the
The False Claims Act count here cannot
services
were
not
worthless
and
the
scienter element is not adequately pleaded.
III. Conclusion
For the foregoing reasons, Defendant’s motions to dismiss
are
GRANTED
with
respect
to
Plaintiff’s
Rhode
Island
False
Claims Act claim, and DENIED with respect to the remainder of
the complaint.
IT IS SO ORDERED.
/s/ William E. Smith
William E. Smith
United States District Judge
Date: August 9, 2013
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