Saint Peter’s University Hospital, Inc. v. Horizon Healthcare Services, Inc. (079097) (Middlesex County and Statewide) , 230 N.J. 73 ( 2017 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Capital Health System, Inc. v. Horizon Healthcare Services, Inc. (A-29/30-16) (077998);
Saint Peter’s University Hospital, Inc. v. Horizon Healthcare Services, Inc. (A-59-16) (079097)
Argued June 20, 2017 -- Decided July 24, 2017
FISHER, P.J.A.D. (temporarily assigned), writing for the Court.
In these appeals, the Court reviews interlocutory orders requiring Horizon’s turnover to plaintiffs of discovery
materials despite Horizon’s objections.
Defendant Horizon Healthcare Services, Inc., New Jersey’s largest health insurer, maintains a two-tiered
provider-hospital system. Plaintiff Saint Peter’s University Hospital, Inc., and plaintiff Capital Health System, Inc.
and others, commenced separate lawsuits in different vicinages, claiming Horizon treated them unfairly and in a
manner that contravened their agreements when they were placed in the less advantageous Tier 2.
Plaintiffs’ claims are based on the clear disadvantage of being placed in Tier 2 because Horizon “adopted
strong financial incentives to encourage” its subscribers “to go to Tier 1” hospitals, i.e., seven large hospital systems
referred to as “Alliance partners.” Horizon retained McKinsey & Company to assist in the selection of the Alliance
partners. Plaintiffs claim that the method and manner of Horizon’s tiering of hospitals constituted a breach of their
network hospital agreements. Plaintiffs also claim that Horizon breached the implied covenant of good faith and fair
dealing, and assert other tort and contract theories, as well. In both suits, the chancery judges directed expedited
discovery and executed confidentiality orders, the terms of which were consented to by the parties.
Discovery disputes quickly arose. After an in camera review, Chancery Judge Frank M. Ciuffani
ordered—subject to the confidentiality order—Horizon’s production of the unredacted McKinsey report, the Tier 1
hospital scores, the Alliance agreements, minutes of the board of director’s meetings, and written communications
between Horizon and Robert Wood Johnson University Hospital (RWJ), an Alliance partner which neighbors Saint
Peter’s in New Brunswick. The proceedings in the Capital Health matter under Chancery Judge Robert P. Contillo
were not dissimilar.
The Appellate Division granted leave to appeal and reversed the discovery orders in both matters. 446 N.J.
Super. 96 (App. Div. 2016). Although the panel cited the deferential standard of review applicable in discovery
matters, it reversed because, having balanced the right to discovery against what it viewed as relatively weak claims,
panel found it “difficult to discern the relevancy of the far-ranging discovery” sought. And the panel determined
that Horizon’s need for protection outweighed plaintiffs’ need for disclosure.
Following that decision, Saint Peter’s pursued additional discovery. Judge Ciuffani ordered a turnover of
other alleged proprietary materials. The judge also required that McKinsey comply with Saint Peter’s subpoena and
that Horizon produce the discovery turned over in the Capital Health matter that Saint Peter’s had requested.
Through a series of expedited orders, the Appellate Division granted Horizon’s and McKinsey’s motions
for a stay and for leave to appeal. The panel determined the orders compelling additional discovery were
inconsistent with its prior determination in the first appeal and that Saint Peter’s had failed to alter the panel’s “prior
assessment” of Saint Peter’s “likelihood of success” on the merits. The panel did not dispose of the interlocutory
appeal it permitted, no doubt because the Court had already granted leave to appeal its earlier published
determination.
The Court granted leave to appeal these interlocutory orders. 228 N.J. 516 (2017); 228 N.J. 519 (2017);
___ N.J. ___ (2017).
1
HELD: Having closely examined the record, the Court rejects the Appellate Division’s determination that the chancery
judges encharged with these matters abused their discretion.
1. Disposition of these interlocutory appeals is driven by the familiar abuse-of-discretion standard applicable when
appellate courts review discovery orders: appellate courts are not to intervene but instead will defer to a trial judge’s
discovery rulings absent an abuse of discretion or a judge’s misunderstanding or misapplication of the law. In
applying this standard, appellate courts must start from the premise that discovery rules are to be construed liberally
in favor of broad pretrial discovery. To overcome the presumption in favor of discoverability, a party must show
good cause for withholding relevant discovery. Broad allegations of harm, unsubstantiated by specific examples or
articulated reasoning, are insufficient. (pp. 8-9)
2. The Appellate Division panel recognized that the maintainability of plaintiffs’ claims was not before it but
nevertheless found it “[could] not avoid analyzing those claims in assessing the relevancy of the information”
sought. 446 N.J. Super. at 115. The panel’s skeptical view of the merits was a basis for its conclusion that the
discovery in question was “not relevant,” id. at 118. And the panel, without any discernible regard for the
confidentiality orders, concluded that—“even if relevant”—plaintiffs’ need for this discovery was “outweighed by
Horizon’s greater need to preserve the confidentiality of its proprietary business information.” Ibid. The Appellate
Division exceeded the limits imposed by the standard of appellate review both by assessing the information’s
relevance against the panel’s own disapproving view of the merits and by giving no apparent weight or
consideration to the protections afforded by the confidentiality orders. (pp. 10-11).
3. Judge Ciuffani found, as Judge Contillo similarly determined in the companion action, that discovery geared
toward unmasking Horizon’s methodology and particular determinations during the selection process, as well as
other information illuminative of Horizon’s acts and intentions, was relevant to plaintiffs’ contractual and implied-
contractual claims, and that any legitimate claim asserted by Horizon, RWJ, or McKinsey that the material was
proprietary would be adequately protected by the confidentiality order. The chancery judges’ determinations were
soundly and logically reached and should not have been second-guessed because the Appellate Division harbored a
different view of the merits. The Court has never held that, when dissemination may be adequately protected by a
confidentiality order, a party’s right to relevant discovery is governed by a court’s impression of that party’s
likelihood of success on the related claim or defense. (pp. 11-14)
The orders under review in these interlocutory appeals are REVERSED, and the matters REMANDED to
the trial courts for proceedings.
CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA and ALBIN; and JUDGE FUENTES
(temporarily assigned) join in JUDGE FISHER’s opinion. JUSTICES PATTERSON, FERNANDEZ-VINA,
SOLOMON, and TIMPONE did not participate.
2
SUPREME COURT OF NEW JERSEY
A-29/30 September Term 2016
A-59 September Term 2016
077998 and 079097
CAPITAL HEALTH SYSTEM, INC.;
THE COMMUNITY HOSPITAL GROUP,
INC., t/a JFK MEDICAL CENTER;
ST. LUKE’S WARREN HOSPITAL,
INC.; TRINITAS REGIONAL
MEDICAL CENTER,
Plaintiffs,
and
CENTRASTATE MEDICAL CENTER,
INC.; HOLY NAME MEDICAL
CENTER, INC.; and THE VALLEY
HOSPITAL, INC.,
Plaintiffs-Appellants,
v.
HORIZON HEALTHCARE SERVICES,
INC.,
Defendant-Respondent.
____________________________
SAINT PETER’S UNIVERSITY
HOSPITAL, INC.,
Plaintiff-Appellant,
v.
HORIZON HEALTHCARE SERVICES,
INC.,
Defendant-Respondent.
Argued June 20, 2017 – Decided July 24, 2017
1
Capital Health System v. Horizon Healthcare
(A-29/30-16); On appeal from the Superior
Court, Appellate Division, whose opinion is
reported at 446 N.J. Super. 96 (App. Div.
2016).
Saint Peter’s University Hospital v. Horizon
Healthcare (A-59-16); On appeal from the
Superior Court, Appellate Division.
Michael K. Furey argued the cause for
appellants Centrastate Medical Center, Inc.,
Holy Name Medical Center, Inc., and the
Valley Hospital Group, Inc., in Capital
Health System v. Horizon Healthcare (A-
29/30-16) (Day Pitney, attorneys; Michael K.
Furey and Dennis R. LaFiura, on the briefs).
Jeffrey J. Greenbaum and Dennis J. Drasco
argued the cause for appellant Saint Peter’s
University Hospital, Inc. in Capital Health
System v. Horizon Healthcare (A-29/30-16)
and Saint Peter’s University Hospital v.
Horizon Healthcare (A-59-16) (Sills Cummis &
Gross and Lum Drasco & Positan, attorneys;
Jeffrey J. Greenbaum, James M. Hirschhorn,
Jason L. Jurkevich, Megan L. Wiggins, Dennis
J. Drasco, and Elaine R. Cedrone, of counsel
and on the briefs).
Michael O. Kassak argued the cause for
respondent Horizon Healthcare Services, Inc.
in Capital Health System v. Horizon
Healthcare (A-29/30-16) and Saint Peter’s
University Hospital v. Horizon Healthcare
(A-59-16) (White and Williams, attorneys;
Michael O. Kassak, Robert Wright, Andrew I.
Hamelsky, Edward M. Koch, and Victor J.
Zarrilli, on the briefs).
Andrew B. Joseph argued the cause for
respondent McKinsey & Company, Inc. in Saint
Peter’s University Hospital v. Horizon
Healthcare (A-59-16) (Drinker Biddle &
Reath, attorneys; Andrew B. Joseph, on the
brief).
2
Edwin F. Chociey, Jr. argued the cause for
intervenor Hackensack University Health
Network and Inspira Health Network in
Capital Health System v. Horizon Healthcare
(A-29/30-16) (Riker, Danzig, Scherer, Hyland
& Perretti, attorneys; Edwin F. Chociey,
Jr., and Glenn A. Clark on the brief).
William F. Maderer argued the cause for
intervenor Robert Wood Johnson University
Hospital in Capital Health System v. Horizon
Healthcare (A-29/30-16) (Saiber, attorneys;
William F. Maderer and Vincent C. Cirilli,
on the brief).
Judge FISHER (temporarily assigned) delivered the opinion
of the Court.
Defendant Horizon Healthcare Services, Inc., New Jersey’s
largest health insurer, maintains a two-tiered provider-hospital
system known as OMNIA approved by the Department of Banking and
Insurance. Capital Health Sys., Inc. v. Dep’t of Banking &
Ins., 445 N.J. Super. 522, 532 (App. Div. 2016). Plaintiff
Saint Peter’s University Hospital, Inc., and plaintiff Capital
Health System, Inc. and others, commenced separate lawsuits in
different vicinages, claiming Horizon treated them unfairly and
in a manner that contravened their agreements when they were
placed in OMNIA’s less advantageous Tier 2. Plaintiffs assert
Horizon’s tiering procedures were pre-fitted or wrongfully
adjusted to guarantee selection of certain larger hospitals for
the preferential Tier 1.
3
In discovery, the chancery judges in the two matters
required Horizon’s turnover to plaintiffs of the same or similar
materials despite Horizon’s objections. The Appellate Division
granted leave to appeal and reversed those discovery orders by
way of a reported decision, Capital Health Sys., Inc. v. Horizon
Healthcare Servs., Inc., 446 N.J. Super. 96 (App. Div. 2016),
and later granted leave to appeal and stayed subsequent orders
compelling Horizon’s production of additional discovery to Saint
Peter’s. We granted leave to appeal these interlocutory orders,
228 N.J. 516 (2017), 228 N.J. 519 (2017), ___ N.J. ___ (2017),
and now reverse the Appellate Division in all respects.
Plaintiffs’ claims are based on the clear disadvantage of
being placed in Tier 2 because Horizon “adopted strong financial
incentives to encourage” its subscribers “to go to Tier 1”
hospitals, i.e., seven large hospital systems referred to as
“Alliance partners.” These Alliance partners agreed to
financial concessions on reimbursement in return for sharing in
the savings expected from OMNIA and an increase in patient-
volume. And Horizon “aggressively promoted Tier 1 hospitals as
providing better care at a lower cost.”
Horizon retained McKinsey & Company to assist in the
selection of the Alliance partners. McKinsey’s May 20, 2014
report identified and prioritized potential Alliance partners
through the use of broad criteria. McKinsey also assisted
4
Horizon in the scoring of hospitals. Plaintiffs claim that the
method and manner of Horizon’s tiering of hospitals constituted
a breach of their network hospital agreements (NHAs), which
contain Horizon’s representations that each hospital “shall
participate in new networks or subnetworks” and “in new
products,” provided the hospital “meets all criteria and
standards established and evaluated by Horizon.” Plaintiffs
also claim that Horizon breached the implied covenant of good
faith and fair dealing, and assert other tort and contract
theories, as well. In both suits, the chancery judges entered
orders to show cause without restraints, directed expedited
discovery, and executed confidentiality orders, the terms of
which were consented to by the parties; these confidentiality
orders prohibited the use of proprietary information for any
business, commercial, competitive, or personal purpose and
limited disclosure to counsel, the parties, and outside experts.
Discovery disputes quickly arose. Saint Peter’s moved for
Horizon’s production of the McKinsey report, the Alliance
agreements, documents relating to the formulation of Tier 1
criteria, the partnership and performance scores for all Tier 1
hospitals, its own partnership and performance scores, and
information regarding communications between Horizon and the
Alliance partners. Horizon argued these materials were
irrelevant and confidential. After an in camera review,
5
Chancery Judge Frank M. Ciuffani ordered -- subject to the
confidentiality order -- Horizon’s production of the unredacted
McKinsey report, the Tier 1 hospital scores, the Alliance
agreements, minutes of the board of director’s meetings, and
written communications between Horizon and Robert Wood Johnson
University Hospital (RWJ),1 an Alliance partner which neighbors
Saint Peter’s in New Brunswick. The judge also denied Horizon’s
motion for reconsideration, except he further limited disclosure
of the rate agreement to Saint Peter’s counsel and experts.
The proceedings in the Capital Health matter were not
dissimilar. Chancery Judge Robert P. Contillo examined the
McKinsey report in camera and authorized some redactions prior
to turnover. The judge also limited disclosure of proprietary
information to each hospital’s attorney, each hospital’s CFO and
CEO, one “technical person,” and each hospital’s outside
consultant. Plaintiffs later sought production of the Alliance
agreements and communications between Horizon and the Alliance
partners regarding OMNIA. Horizon argued these materials were
irrelevant and contained confidential, proprietary and trade
1 The judge required that Horizon produce not only its Alliance
agreement with RWJ, but also the rate agreement, letter of
intent, and template, while limiting -- “for the eyes of St.
Peter’s counsel only” -- the specific rates. Turnover of the
Alliance agreements with other hospitals was subject to any
applications by those hospitals for a protective order; no
affected Alliance partner sought relief from disclosure.
6
secret information. Judge Contillo ordered a turnover subject
to some redactions.
The Appellate Division granted leave to appeal and reversed
the discovery orders in both matters. Although the panel cited
the deferential standard of review applicable in discovery
matters, Capital Health Sys., supra, 446 N.J. Super. at 114, it
reversed because, having balanced the right to discovery against
what it viewed as relatively weak claims, id. at 116 (noting the
claims “rest[ed] on the slenderest of reeds”), the panel found
it “difficult to discern the relevancy of the far-ranging
discovery” sought, ibid. And, recognizing that the presumption
of discoverability of relevant information may be overcome by a
demonstration that an evidentiary privilege applies, Payton v.
N.J. Tpk. Auth., 148 N.J. 524, 539 (1997), the panel determined
that Horizon’s need for protection outweighed plaintiffs’ need
for disclosure.
Following the Appellate Division’s published decision,
Saint Peter’s pursued additional discovery. Judge Ciuffani
ordered a turnover of other alleged proprietary materials,
concluding that the Appellate Division’s decision was limited to
certain specific documents and that information relating to
Horizon’s criteria for rating the hospitals was relevant to the
theory that Horizon had crafted and implemented the tiering
process to reach a predetermined result. The judge also
7
required that McKinsey comply with Saint Peter’s subpoena and
that Horizon produce the discovery turned over in the Capital
Health matter that Saint Peter’s had requested.
Through a series of expedited orders, the Appellate Division
granted Horizon’s and McKinsey’s motions for a stay and for leave
to appeal. The panel determined the orders compelling additional
discovery were inconsistent with its prior determination in the
first appeal and that Saint Peter’s had failed to alter the panel’s
“prior assessment” of Saint Peter’s “likelihood of success” on the
merits. The panel did not dispose of the interlocutory appeal it
permitted, no doubt because we had already granted leave to appeal
its earlier published determination.
Our disposition of these interlocutory appeals from the
Appellate Division’s published opinion and later unpublished
orders is driven by the familiar abuse-of-discretion standard
applicable when appellate courts review discovery orders:
appellate courts are not to intervene but instead will defer to
a trial judge’s discovery rulings absent an abuse of discretion
or a judge’s misunderstanding or misapplication of the law.
Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 371
(2011).
In applying this standard, appellate courts must start from
the premise that discovery rules “are to be construed liberally
in favor of broad pretrial discovery,” Payton, supra, 148 N.J.
8
at 535, because “[o]ur court system has long been committed to
the view that essential justice is better achieved when there
has been full disclosure so that the parties [may become]
conversant with all the available facts,” Jenkins v. Rainner, 69
N.J. 50, 56 (1976). Consequently, to overcome the presumption
in favor of discoverability, a party must show “good cause” for
withholding relevant discovery by demonstrating, for example,
that the information sought is a trade secret or is otherwise
confidential or proprietary. See R. 4:10-3; Hammock by Hammock
v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 369 (1995). Not every
proprietary claim will meet this standard. The party attempting
to show that “secrecy outweighs the presumption” of
discoverability must be “specific[] as to each document”;
“[b]road allegations of harm, unsubstantiated by specific
examples or articulated reasoning, are insufficient.” Id. at
381-82.
In ruling on the discovery disputes in the Saint Peter’s
action, Judge Ciuffani invoked and applied these principles when
he compelled a turnover of the discovery in question. In his
opinion, which the Appellate Division quoted at length, Capital
Health, supra, 446 N.J. Super. at 108-09, Judge Ciuffani
thoroughly and logically explained why the McKinsey report and
other information that illuminated Horizon’s decision to place
hospitals in either Tier 1 or Tier 2 were relevant to the claim
9
that Horizon’s “choice and application of criteria” lacked “a
rational basis,” and were relevant as well to whether Horizon
“acted in good faith towards providers.” Id. at 108. Even
though, as the panel recognized, the judge later dismissed the
claims of breach of fiduciary duty, consumer fraud, unfair
competition, and equitable estoppel, id. at 109, the discovery
sought by Saint Peter’s remained relevant to its claims that
Horizon breached the terms of the NHA, as well as the implied
covenant of good faith and fair dealing.
The panel recognized that the maintainability of
plaintiffs’ claims was not before it but nevertheless found it
“[could] not avoid analyzing those claims in assessing the
relevancy of the information” sought. Id. at 115. The panel’s
skeptical view of the merits -- evidenced by the observation
that the contractual claims “rest[ed] on the slenderest of
reeds,” id. at 116 -- was a basis for the panel’s conclusion
that the discovery in question was “not relevant,” id. at 118.
And the panel, without any discernible regard for the
confidentiality orders, concluded that -- “even if relevant” --
plaintiffs’ need for this discovery was “outweighed by Horizon’s
greater need to preserve the confidentiality of its proprietary
business information.” Ibid.
We conclude the Appellate Division exceeded the limits
imposed by the standard of appellate review both by assessing
10
the information’s relevance against the panel’s own disapproving
view of the merits and by giving no apparent weight or
consideration to the protections afforded by the confidentiality
orders. Having closely examined the record, we reject the
Appellate Division’s determination that the chancery judges
encharged with these matters abused their discretion. It was
not an abuse of discretion for the chancery judges to find the
information sought was relevant to plaintiffs’ claims that
Horizon violated either the NHA’s contractual terms, or the
overarching implied covenant of good faith and fair dealing,
when they were relegated to the less desirable Tier 2.
In his initial decision compelling the turnover of the
unredacted McKinsey report, Tier 1 hospital scores, Alliance
agreements, and other related materials, Judge Ciuffani cogently
explained, as recounted in the Appellate Division’s opinion, id.
at 107-09, the relevance of those items to the claims asserted.
Although some of the pleaded causes of action, which formed part
of that determination’s foundation, have since been dismissed,
the judge’s reasoning is equally applicable to the alleged
breaches of the NHA’s expressed and implied terms. Judge
Ciuffani also recognized that the confidentiality order
sufficiently protected Horizon’s proprietary concerns. He
amplified his reasoning when ruling on the later discovery
disputes -- a determination which led to the Appellate Division
11
again granting leave to appeal. For example, as Judge Ciuffani
explained in denying the motion to quash the subpoena issued by
St. Peter’s to McKinsey:
McKinsey worked with Horizon at every
stage of OMNIA’s formation and development.
McKinsey developed suggested structures for
the proposed tiered network and, with Horizon,
jointly developed the criteria that Horizon
should consider in evaluating hospitals for
the preferred Tier 1. McKinsey never
suggested geographic exclusivity as a
criterion and, in fact, proposed a model for
OMNIA in Middlesex County that did not rely on
having only one Tier 1 partner.
Saint Peter’s subpoenaed McKinsey to
obtain documents related to its work for
Horizon on the formation and development of
OMNIA, including the development of the
proposed structure of the tiered networks, the
development of the criteria, and how and when
that criteria changed. Saint Peter’s is
looking for information regarding the timing
of when the hospitals were rated each time,
the conversations between Horizon and McKinsey
regarding the ratings, who at Horizon ordered
the changes in criteria and their weights, and
who at Horizon was involved in these
discussions.
Saint Peter’s alleges that Horizon pre-
selected RWJ as the Tier 1 partner for the
Middlesex County area, and adjusted the
criteria for Tier 1 participation to obtain a
predetermined result. In so doing, Horizon
[is alleged to have] breached the explicit
terms of the [NHA], which guaranteed that
Saint Peter’s could participate in any new
network, subnetwork, or product introduced by
Horizon as long as it met the “criteria and
standards” for participation. Horizon [is]
also [alleged to have] breached the implied
covenant of good faith by arbitrarily choosing
criteria, and then changing them ex post facto
12
in order to exclude Saint Peter’s from the
preferred Tier 1 network.
The timing of changes to the criteria or
the hospital ratings are all relevant to the
preselection[-]of[-]partners theory and
whether Horizon adjusted the criteria to
obtain a predetermined result. Moreover,
information on who at Horizon knew about [or]
participated in these changes [or both,] in
order to deprive Saint Peter’s of its
bargained-for right of participation is also
relevant to [the claim of] Horizon’s bad faith
and its intent to harm Saint Peter’s.
The . . . [c]onfidentiality [o]rder
already in place in this action sufficiently
protects any confidentiality interest Horizon
purports to have in these documents.
In short, Judge Ciuffani found, as Judge Contillo similarly
determined in the companion action, that discovery geared toward
unmasking Horizon’s methodology and particular determinations
during the selection process, as well as other information
illuminative of Horizon’s acts and intentions, was relevant to
plaintiffs’ contractual and implied-contractual claims, and that
any legitimate claim asserted by Horizon, RWJ, or McKinsey that
the material was proprietary would be adequately protected by
the confidentiality order.2
The chancery judges’ determinations were soundly and
logically reached and should not have been second-guessed
2 Whether the class of recipients of the specific rates -- so far
ordered turned over only “for the eyes of St. Peter’s counsel” --
might be appropriately expanded in the future is not before us.
13
because the Appellate Division harbored a different view of the
merits. We have never held that, when dissemination may be
adequately protected by a confidentiality order, a party’s right
to relevant discovery is governed by a court’s impression of
that party’s likelihood of success on the related claim or
defense.
The orders under review in these interlocutory appeals are
reversed, and the matters remanded to the trial courts for
further proceedings.
CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA and ALBIN; and
JUDGE FUENTES (temporarily assigned) join in JUDGE FISHER’s
opinion. JUSTICES PATTERSON, FERNANDEZ-VINA, SOLOMON, and
TIMPONE did not participate.
14