Upmc v. Cbiz, Inc.
| Decision Date | 29 September 2017 |
| Docket Number | Case No. 3:16-cv-204 |
| 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 |
MEMORANDUM OPINION
Pending before the Court is the Motion to Dismiss (ECF No. 12) filed by Defendants CBIZ, Inc., CBIZ Benefits & Insurance Services, Inc., and Jon S. Ketzner (collectively "CBIZ"). CBIZ's Motion asks the Court to dismiss the entirety of Plaintiffs' Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
This case arises from Plaintiff UPMC's acquisition of Plaintiff Altoona Regional Health System—an acquisition which, according to Plaintiffs, came with a $132.5 million surprise in the form of CBIZ's negligent understatement of Altoona Regional Health System's pension plan liabilities. For the reasons that follow, CBIZ's Motion to Dismiss will be DENIED.
On September 16, 2016, UPMC and UPMC Altoona, formerly known as Altoona Regional Health System ("Altoona"), filed their three-count Complaint (ECF No. 1) with the Court, alleging claims of (1) professional negligence, (2) breach of contract, and (3) negligent misrepresentation against CBIZ. On November 23, 2016, CBIZ filed the present Motion to Dismiss (ECF No. 12) and its accompanying Brief in Support (ECF No. 13). UPMC and Altoona filed their Opposition to Defendants' Motion to Dismiss on January 4, 2017 (ECF No. 29), followed by CBIZ's Reply in Support of Their Motion to Dismiss on February 2, 2017 (ECF No. 32), UPMC and Altoona's Supplemental Memorandum in Opposition to Defendants' Motion to Dismiss on April 10, 2017 (ECF No. 45), and, finally, CBIZ's Response to Plaintiffs' Supplemental Brief on April 17, 2017 (ECF No. 46).
The following facts, which the Court accepts as true in deciding CBIZ's Motion to Dismiss, are alleged in the Complaint (ECF No. 1).
UPMC owns and operates nonprofit healthcare facilities in and around Pittsburgh, Pennsylvania and is the parent and supporting organization for numerous other nonprofit healthcare providers throughout the Commonwealth. (ECF No. 1 ¶ 1.) Altoona Regional Health System operated healthcare facilities in Altoona, Pennsylvania and the surrounding area. (Id. ¶ 2.)
Until July 1, 2013, Altoona Regional Hospital operated two noncontributory defined benefit pension plans covering all employees who met certain eligibility requirements ("the Plans"). (Id. ¶¶ 3, 16.) On July 1, 2013, UPMC acquired Altoona Regional Health System and renamed it "UPMC Altoona." (Id. ¶ 3.) As part of this transaction, UPMC acquired all of Altoona's assets and liabilities, including the Plans. (Id. ¶ 3.) Shortly thereafter, Altoona mergedthe two Plans and, on December 31, 2014, UPMC merged the now-singular Altoona Plan into UPMC's pension benefit plan. (Id. ¶ 16.)
From approximately 2002 through February 2015, Altoona engaged CBIZ to provide actuarial evaluation services for the Plans for a substantial fee. (Id. ¶¶ 10, 23.) These services, which CBIZ represented itself to Altoona as being experienced, qualified, and capable of providing, included (1) the calculation of benefits owed for purposes of funding the Plans in compliance with ERISA requirements and for the determination of premiums owed to the Pension Benefit Guaranty Corporation ("PBGC"); (2) valuing the Projected Benefit Obligation expense under Generally Accepted Accounting Principles ("GAAP") for the purpose of including the pension plan expenses in Altoona's financial statements; (3) certifying the Plans' funded ratios; (4) preparing required filing such as schedules to the Plans' annual Form 5500s to its regulators; and (5) certifying the Plans' PBGC premium filings. (Id. ¶¶ 22, 24.)
Defendant Jon S. Ketzner, a CBIZ, Inc. and CBIZ B&I, Inc. employee until January 1, 2015, was the "lead and sole actuary" engaged to value the obligations and liabilities on the Plans. (Id. ¶ 7.) Ketzner is an Enrolled Actuary, a Member of the American Academy of Actuaries, a Fellow of the Conference of Consulting Actuaries, and a Member of the American Society of Pension Professional and Actuaries' College of Pension Actuaries. (Id.) Accordingly, he is bound to follow and uphold actuarial standards of professional conduct and competence. (Id.)
However, according to the Complaint, from at least July 2008 through February 2015, CBIZ and Ketzner failed to adhere to these actuarial standards of practice and, consequently, undervalued the Plans' liabilities for funding, compliance, and accounting purposes. (Id. ¶ 29.) Allegedly, CBIZ admits to committing three substantial mistakes in its valuation that understatedthe liabilities under the Plan by at least $132.5 million. (Id. ¶¶ 32-33.) Until March 2015, this undervaluation was undisclosed, unknown, and unknowable by Altoona and UPMC because the undervaluation was the result of erroneous assumptions and methodologies undisclosed in the reports produced by CBIZ. (Id. ¶ 31.) In early March 2015, Alvin Winters, another CBIZ actuary who began reviewing the Altoona valuation upon Ketzner's retirement in early 2015, discovered and disclosed the serious errors in Ketzner's assumptions and methodology. (Id.)
The Complaint specifically identifies two injuries that Altoona suffered from CBIZ's alleged errors. First, had CBIZ valued the Plans properly, the Plans would have mandatorily "frozen"—one plan on October 1, 2011 and the other plan on October 1, 2012—due to insufficient funding, and no new benefits would have accrued to any participants. (Id. ¶ 34.) Second, UPMC and Altoona "may" be required to pay excise taxes, penalties, interest, and back premiums to the Internal Revenue Service ("IRS") and the PBGC. (Id. ¶¶ 57-59.)1 Additionally, the Complaint states that UPMC suffered damages of at least $142 million dollars when it acquired Altoona's unexpectedly high pension liabilities. (Id. ¶ 76.)
UPMC is a Pennsylvania nonprofit corporation with its principal place of business in Pittsburgh, Pennsylvania. (ECF No. 1 ¶ 1.) 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,2 and that Ketzner resides in Maryland.3 (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 alleged events giving rise to Plaintiffs' claims occurred within the Western District of Pennsylvania, venue is proper in this district under 28 U.S.C. § 1391(b)(2).
A complaint may be dismissed under Federal Rule of Civil Rule 12(b)(6) for "failure to state a claim upon which relief can be granted." Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016). But detailed pleading is not generally required. Id. The Rules demand only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to give the defendant fair notice of what the claim is and the grounds upon which it rests. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)).
Under the pleading regime established by Twombly and Iqbal, a court reviewing the sufficiency of a complaint must take three steps.4 First, the court must "tak[e] note of the elements [the] plaintiff must plead to state a claim." Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009). Second, thecourt should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 679; see also Burtch v. Milberg Factors, Inc., 662 F.3d 212, 224 (3d Cir. 2011) (quoting Santiago v. Warminster Twp., 629 F.3d 121, 131 (2010)) ("Mere restatements of the elements of a claim are not entitled to the assumption of truth."). Finally, "[w]hen there are well-pleaded factual allegations, [the] court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.; see also Connelly, 809 F.3d at 786. Ultimately, the plausibility determination is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
CBIZ has moved to dismiss the Complaint in its entirety based on three primary arguments: (1) Count 1 and Count 2 should be dismissed for failure to allege damages, (2) Count 1 should be dismissed because Pennsylvania law does not recognize a claim for professional negligence against actuaries, and (3) Count 3 should be dismissed for failure to allege "any" of the essential elements of a negligent misrepresentation claim. (ECF No. 13.) The Court will address each of CBIZ's three theories in turn.
In Count 1 and Count 2 of the Complaint, Altoona—and only Altoona—brings claims of negligence and breach of contract against CBIZ. (ECF No. 1 at 15-16.) CBIZ responds by arguingthat "[b]oth counts should be dismissed for failure to allege damages, because Altoona benefited by UPMC's assumption of the alleged $123 million5 pension obligation." (ECF No. 13 at...
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