UPMC v. CBIZ, Inc.

• Decision Date: 30 January 2020
• Docket Number: Case No. 3:16-cv-204
• Citation: 436 F.Supp.3d 822
• Parties: UPMC d/b/a University of Pittsburgh Medical Center, and UPMC Altoona f/k/a Altoona Regional Health System, Plaintiffs, v. CBIZ, INC., CBIZ Benefits & Insurances Services, Inc., and Jon S. Ketzner, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

436 F.Supp.3d 822

UPMC d/b/a University of Pittsburgh Medical Center, and UPMC Altoona f/k/a Altoona Regional Health System, Plaintiffs,

v.CBIZ, INC., CBIZ Benefits & Insurances Services, Inc., and Jon S. Ketzner, Defendants.

Case No. 3:16-cv-204

United States District Court, W.D. Pennsylvania.

Filed January 30, 2020

Cyril V. Smith, William J. Murphy, Zuckerman Spaeder LLP, Baltimore, MD, John A. Schwab, Pietragallo Gordon Alfano Bosick & Raspanti, Pittsburgh, PA, Paula M. Junghans, Zuckerman Spaeder LLP, Washington, DC, Sara Alpert Lawson, Zuckerman Spaeder LLP, Tampa, FL, for Plaintiffs.

Ernest E. Vargo, Jr., Guenther Karl Fanter, Sam A. Camardo, PRO HAC VICE, Baker Hostetler LLP, Michael E. Mumford, PRO HAC VICE, Cleveland, OH, Vincent J. Barbera, Barbera, Melvin, Svonavec & Sperlazza, LLP, Somerset, PA, for Defendant.

MEMORANDUM OPINION

JUDGE KIM R. GIBSON

I. Introduction

This case arises from Plaintiff UPMC's acquisition of Plaintiff Altoona Regional Health System ("Altoona") —an acquisition which, according to Plaintiffs, resulted in over $100 million in damages from Defendants' negligent understatement of Altoona's pension plan liabilities. Pending before the Court is Defendants' Motion for Summary Judgment (ECF No. 177). The Motion is fully briefed (ECF Nos. 178, 201, 220) and ripe for disposition. For the reasons that follow, the Court DENIES Defendants' Motion.

II. Jurisdiction and Venue

This Court has subject-matter jurisdiction because the parties are diverse and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a). Venue is proper because a substantial part of the events giving rise to Plaintiffs' claims occurred in the Western District of Pennsylvania. 28 U.S.C. § 1391(b)(2).

III. Factual Background

The following facts are undisputed unless otherwise noted.¹

A. UPMC's Acquisition of Altoona

In November 2012, UPMC and Altoona officially announced to the public that UPMC planned to acquire Altoona. (ECF No. 221 ¶ 153.) The deal closed on July 1, 2013, when UPMC became the parent and sole corporate member of Altoona, which became UPMC Altoona, on that date. (Id. ¶¶ 9–10.) UPMC Altoona operates health-care facilities in Blair County, Pennsylvania and the surrounding area. (ECF No. 221 ¶ 1.) UPMC operates health-care facilities in and around Pittsburgh, Pennsylvania. (Id. ¶ 2.)

B. Altoona's Retirement Benefit Plans

Altoona sponsored two qualified defined benefit pension plans,² known as the Retirement Plan for the Bargaining Unit Employees of the Altoona Regional Health System ("BU Plan") and the Retirement Plan for the Non-Bargaining Unit Employees of the Altoona Regional Health System ("NBU Plan") (collectively, the "Plans"). (Id. ¶ 6.) The Plans are governed by the Employee Retirement Income Security Act ("ERISA"), which specifies the amount that a pension plan sponsor must contribute to its pension plan on a yearly basis. (Id. ¶ 8.)

On July 1, 2013, the BU Plan and NBU Plan merged to form the Retirement Plan for Employees of the Altoona Regional Health System. (Id. ¶ 11.) As of July 1, 2013, UPMC Altoona became the Plans' sponsor. (Id. ¶ 12.) As of December 31, 2014, UPMC merged the Plans into UPMC's own defined benefit pension plan known as the UPMC Basic Retirement Plan. (Id. ¶ 14.)

Altoona's average contribution to the Plans was $8.17 million for plan years 2008, 2009, and 2010.³ (Id. ¶ 335.) For plan years 2008 through 2011, Altoona made an average actual contribution to the Plans of $10.06 million each year. (Id. ¶ 336.) From June 30, 2012, until the December 2014 merger of the Plans, UPMC Altoona contributed a total of $16.75 million into the Plans. (Id. ¶ 141.) UPMC made all contributions to the Plans after June 30, 2013. (Id. ¶ 142.)

C. Altoona's Financial Troubles

Altoona began experiencing financial troubles in 2008 due to multiple factors; CBIZ, as Altoona's actuary, proposed a "soft freeze"⁴ of Altoona's Plans. (Id. ¶ 282.) Altoona's Finance Committee and Board of Directors both voted unanimously to adopt CBIZ's recommendations to: (1) implement a soft freeze, which took effect on June 30, 2008; and (2) migrate new employees into a defined contribution plan, specifically a 403(b) plan. (Id. ¶ 283.) In 2008, Altoona's Finance Committee considered a distress termination of the Plans, but decided against it for several reasons, one of which was because CBIZ told the Board that Altoona would have to shoulder the entire $40 million cost of the termination immediately. (Id. ¶ 285.) Altoona never implemented a hard freeze of the Plans, but Plaintiffs assert that in October 2012, the Finance Committee responded to an increase in accrued pension liability by considering a hard freeze of the Plans and paying off the liability. (Id. ¶¶ 34, 286.) Altoona never sought a distress termination of the Plans and Altoona's management never discussed seeking a distress termination of the Plans. (Id. ¶¶ 35–36.)

Altoona reported approximately $11.5 million in cumulative operating losses from fiscal year 2009 to 2013. (Id. ¶ 263.) Altoona's average annual expenses from 2009 to 2013 were approximately $471 million, of which approximately $440 million, or 92%, were from salaries, benefits, physician fees, purchased services, and supplies. (Id. ¶¶ 89, 317.) Due in part to Altoona's operating losses, Plaintiffs assert that Altoona missed at least eight quarterly pension contributions from 2009 to 2012 and was in a funding deficit. (Id. ¶¶ 275, 278)

In May 2009, Standard & Poor's ("S&P") lowered its rating on Altoona's revenue bonds to BBB+⁵ due in part to Altoona's increasing operation losses. (Id. ¶ 269.) In December 2011, S&P affirmed Altoona's BBB+ bond rating but revised its outlook on Altoona from stable to negative, indicating potential future financial challenges for Altoona. (Id. ¶ 270.) Plaintiffs assert that as of December 2011, S&P recognized that Altoona had weak liquidity because Altoona had only 70 days cash on hand, a measure of liquidity and a common metric for assessing a business's health. (Id. ¶¶ 295–96, 298.) Altoona's cash on hand dropped from 200 days in 2004, to 90 days in 2010, to 69 in 2011. (Id. ¶ 301.) Altoona's accountants cautioned Altoona that 100 days of cash on hand was required to be in a strong position. (Id. ¶ 303.)

For plan years 2009, 2010, and 2011, S&P reported that Altoona had "Unrestricted cash and investments" of $106.646 million, $90.488 million, and $104.902 million, respectively. (Id. ¶ 64.) Most of these assets were in a category of Altoona's balance sheet labeled "Assets Limited as to Use." (Id. ¶ 307.) As of June 30, 2011, about $30 million out of $88 million of Altoona's Assets Limited as to Use was either restricted by donors to specific uses, reserved to pay malpractice claims, or required to be segregated for payment of Altoona's bond debt. (Id. ¶ 308.) As of June 30, 2011, about $58 million out of the $88 million of Altoona's Assets Limited as to Use had been designated in "funded depreciation accounts" by Altoona's Board "for future renovations and replacements or expansion of Health System facilities as needed." (Id. ¶ 309.) Defendants assert that when the acquisition of Altoona closed, Altoona had approximately $95.7 million in unrestricted cash and investments that Altoona could have used to fund the Plans. (Id. ¶ 65.) Plaintiffs assert that Altoona only had $74.6 million total cash and investments when the acquisition closed, of which only $9.4 million of it was cash and equivalents without any restriction or limitation as to use. (Id. )

D. CBIZ's Actuary Services for Altoona

Until his retirement in early 2015, Defendant Jon Ketzner was an actuary employed by Defendant CBIZ Benefits & Insurance Services, Inc. ("CBIZ B&I"), in Cumberland, Maryland. (Id. ¶ 15.) Defendant CBIZ, Inc., wholly owns CBIZ Operations, Inc., which in turn wholly owns CBIZ B&I. (Id. ¶ 16.) Ketzner provided actuarial services related to the Plans to Altoona from the early 1990s through July 1, 2013, and to UPMC Altoona from July 1, 2013, until his retirement in January 2015.

(Id. ¶ 17.) Upon Ketzner's retirement, another CBIZ B&I actuary named Al Winters took over responsibility for the UPMC Altoona client relationship. (Id. ¶ 18.)

CBIZ, Inc., is a publicly traded holding company. (Id. ¶ 227.) Defendants assert that CBIZ, Inc., conducts no business operations, does not contract with clients to provide services., and has no employees. (Id. ¶¶ 228–30.) Plaintiffs assert that Ketzner's resume lists him as "Executive VP/Chief Actuary" for "CBIZ (NYSE: CBZ)," which describes the national, diversified company. (Id. ¶ 485.) Plaintiffs assert that CBIZ's website identified Ketzner as both a principal in CBIZ B&I and CBIZ, Inc., in 2015. (Id. ¶¶ 486.) Plaintiffs assert that at Ketzner's office in Maryland, Ketzner's fellow pension consultants identified themselves as agents or employees of CBIZ, Inc. (Id. ¶ 484.) Ron Devine, a CBIZ insurance representative, testified that he was an employee of CBIZ, Inc., working in Johnstown, Pennsylvania. (Id. ¶ 482.) Devine's email signature refers to him as both a CBIZ B&I employee and as a Senior Vice President of "CBIZ, Inc. NYSE Listed: CBZ." (Id. ¶ 483.) Plaintiffs assert that in November 2011, Ketzner prepared a written contract for Altoona's execution pertaining to additional proposed benefit consulting work for Altoona. (Id. ¶ 479.) Ketzner sent the contract under a cover email bearing the CBIZ, Inc., corporate logo and identified CBIZ, the entity performing the work, as a nationwide service provider that is publicly traded on the New York Stock Exchange. (Id. ¶ 479.) The contract identified Ketzner as part of the "CBIZ Staff" working on the project. (Id. ¶ 480.) Plaintiffs assert that Altoona and UPMC, in signing the contract, relied on the fact that "CBIZ" was a publicly traded, national actuarial firm. (Id. ¶ 489.)

One of the services that Ketzner provided to Altoona was preparing an annual accounting report, or GAAP report, which estimated Altoona's...