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Capital Health System, Inc. v. Horizon Healthcare Services, Inc.

Supreme Court of New Jersey

July 24, 2017

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,
v.
HORIZON HEALTHCARE SERVICES, INC., Defendant-Respondent. and CENTRASTATE MEDICAL CENTER, INC.; HOLY NAME MEDICAL CENTER, INC.; and THE VALLEY HOSPITAL, INC., Plaintiffs-Appellants, SAINT PETER'S UNIVERSITY HOSPITAL, INC., Plaintiff-Appellant,
v.
HORIZON HEALTHCARE SERVICES, INC., Defendant-Respondent.

          Argued June 20, 2017.

         Capital Health System v. Horizon Healthcare (A-29/30-16); On appeal from the Superior Court, Appellate Division, whose opinion is reported at 6 N.J.Super. 96');">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 0. 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 0. 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).

          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).

         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. 6 N.J.Super. 96');">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 ...


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