UPMC v. CBIZ, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

UPMC d/b/a UNIVERSITY OF ) Case No. 3:16-cv-204

PITTSBURGH MEDICAL CENTER, and _)

UPMC ALTOONA f/k/a ALTOONA ) JUDGE KIM R. GIBSON

REGIONAL HEALTH SYSTEM, )

)

Plaintiffs, )

)

v. )

)

CBIZ, INC., CBIZ BENEFITS & )

INSURANCES SERVICES, INC., and )

JON S. KETZNER, )

)

Defendants. )

MEMORANDUM OPINION

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).

Ill. Factual Background

The following facts are undisputed unless otherwise noted.!

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 J 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,? 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. J 8.)

The Court derives these facts from a combination of Defendants’ Local Rule 56(b)(1) Statement of

Undisputed Material Facts (ECF No. 179), Plaintiffs’ Local Rule 56(c) Response to Defendants’ Statement

of Facts and Plaintiffs’ Statement of Facts (ECF No. 200), and Defendants’ Reply Regarding Local Rule

56(b)(1) Statement of Material Undisputed Facts and Response to Plaintiffs’ Statement of Facts (ECF No.

defined benefit plan promises to pay a set benefit to an employee once the employee reaches normal

retirement age. A defined contribution plan promises to make a set contribution for the employee's benefit,

which may be withdrawn at normal retirement age.

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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. J 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. J 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”* of Altoona’s Plans. (Id. J 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. J 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. J 285.) Altoona never implemented

a hard freeze of the Plans, but Plaintiffs assert that in October 2012, the Finance Committee

3 A plan year runs from July 1 of that year until June 30 of the following year. For example, plan year 2008

ran from July 1, 2008, to June 30, 2009.

‘Ina “soft freeze,” new participants are not permitted to join the plan, but the current participants continue

to accrue benefits under the plan. By contrast, a “hard freeze” is a freeze of all benefit accruals under the

plan, in addition to prohibiting new participants.

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responded to an increase in accrued pension liability by considering a hard freeze of the Plans

and paying off the liability. (Id. 1] 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.

TT 35-36.)

Altoona reported approximately $11.5 million in cumulative operating losses from fiscal

year 2009 to 2013. (Id. I 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. [J 275, 278)

In May 2009, Standard & Poor's (“S&P”) lowered its rating on Altoona’s revenue bonds

to BBB+ 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. J 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. TY] 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.)

5 An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic

conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial

commitments on the obligation. (ECF No. 221 { 269.)

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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. 7

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. 7 308.) 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.

q 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.)

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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&l

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. J

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. I 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. 1 479.) The contract identified Ketzner as part of the “CBIZ

Staff” working on the project. (Id. 1 480.) 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 pension funding obligations for a particular

plan year. (Id. { 149.) On September 17, 2012, CBIZ issued an accounting report to Altoona for

plan year 2011 (the “Ketzner Report”). (Id. J 151.) Actuarial standards of practice required

Ketzner to disclose all of his material methods and assumptions in his reports. (Id. 421.)

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E. UPMC’s Alleged Reliance on the Ketzner Report

UPMC alleges that it acquired Altoona in reliance on the Ketzner Report. (Id. { 157.)

Defendants assert that Ketzner and other CBIZ employees did not know of any potential

acquisition of Altoona prior to the public announcement in November 2012. (Id. {I 182-86.)

1. CBIZ’s Work on the Plans Before the Acquisition Announcement

Plaintiffs assert that Altoona’s CFO Charlie Zorger disclosed a potential affiliation to

Defendants in an email on August 16, 2012, prior to the public announcement of UPMC’s

potential acquisition of Altoona in November 2012. (Id. { 175.) In the email, Zorger asked CBIZ

employee Mike Miller: “The auditors that are doing a pro-forma for an affiliation wanted to know

if you had the unfunded liability for 6/12?” (Id. J] 200.) The “affiliation” referred to in the email

did not refer to a potential acquisition of Altoona by UPMC, but instead referred to a potential

affiliation called the Three or Four Corners strategy in which Altoona would have affiliated with

Conemaugh Health System, Du Bois Regional Medical Center, and Mount Nittany Medical

Center. (Id. {J 203, 206.) Plaintiffs assert that, like the affiliation with UPMC, the Three or Four

Corners strategy affiliation would have involved financial risk-sharing, including sharing the risk

for Altoona’s pension liability. (Id. { 447.) Defendants assert that the Three or Four Corners

strategy was confidential and that Ketzner was not aware of it. (Id. {J 211, 213.)

Defendants assert that neither Ketzner nor any other CBIZ employee heard that UPMC

was considering acquiring Altoona. (Id. IJ 225-26.) Plaintiffs assert that at least as early as

January 15, 2012, Defendants had an electronic alert in place for all news related to “Altoona

Regional Health System” and that Ketzner was forwarded Altoona press coverage. (Id. {J 435-

36.) Plaintiffs assert that CBIZ’s files include multiple newspaper articles, published before the

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November 2012 announcement and the Ketzner Report, referring to Altoona’s potential affiliation

with two other hospitals, or describing Altoona’s potential partnership with, or acquisition by,

UPMCG, Geisinger, or Highmark. (Id. { 437.)

2. CBIZ’s Role in UPMC’s Due Diligence

UPMC began its formal due diligence on its acquisition of Altoona in January 2013. (Id. I

415.) Plaintiffs assert that Ketzner testified that, as part of UPMC’s due diligence, he submitted a

written certification that the Plans had no operational defects or other compliance issues. (Id.

448.) Ketzner testified that Altoona asked him to provide information to UPMC in January 2013;

specifically, the latest actuarial reports on funding liabilities for all employee benefit plans. (Id. J

452-53.) Plaintiffs assert that Ketzner testified that he knew that all such requested documents

would go to UPMC. (Id. J 454.)

On March 26, 2013, Altoona uploaded the Ketzner Report to a Share Point site that

Altoona and UPMC used to collect documents in the course of due diligence on the acquisition.

(Id. J 456.) Altoona provided copies of spreadsheets and other UPMC due diligence materials to

CBIZ and asked CBIZ to fill in any missing information. (Id. { 462.) On April 11, 2013, Altoona’s

Vice President of Human Resources, Gary Naugle, emailed Ketzner seeking funding information

for the Plans to place in a spreadsheet summarizing Altoona’s retirement plan information. (Id.

{ 464.) Plaintiffs assert that, as part of this process, Miller filled in a series of open cells in the

UPMC spreadsheet for plan year 2011 pension funding numbers that Ketzner had given him to

complete. (Id. I] 465-66.)

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On April 15, 2013, CBIZ prepared the plan year 2011 Form 5500° for each Plan and sent

them to Altoona for electronic filing with the IRS. (Id. { 471.) On April 16, 2013, Naugle told

Galley that the Form 5500s for plan year 2011 had been uploaded to the SharePoint site. (Id.

472.) Plaintiffs assert that those documents, the 2011 BU Plan 5500 and 2011 NBU Plan 5500,

understated the Plans’ funding obligation by $52.5 million. (Id. { 473.) Plaintiffs assert that the

two documents falsely certified that Ketzner’s actuarial assumptions were complete, accurate,

and reasonable. (Id. J 474.)

F, Winters Recalculates the Pension Funding Obligation

In February 2015, Winters began to calculate, according to UPMC’s funding policy, UPMC

Altoona’s funding obligation regarding the Plans for plan year 2013. (Id. J 19.) Winters calculated

this amount to be greater than Ketzner’s 2014 estimate. (Id. 20.) Winters disclosed this

discrepancy to UPMC within a week of his preliminary calculation. (Id. { 21.) At UPMC’s

request, Winters recalculated the funding requirements that Ketzner had provided to Altoona

and UPMC for plan years 2008 to 2012. (Id. { 22.) Winters’s revised calculations showed

increased ERISA funding requirements (the “Revised Pension Funding Obligation”). (Id. { 23.)

G. The Pension Benefit Guarantee Corporation

1. The Statutory Framework

A “distress termination” is a type of defined benefit pension plan termination under

ERISA. (Id. { 37.) The Pension Benefit Guarantee Corporation (“PBGC”) administers the distress

termination statute and regulations. (Id. J 38.) Ina distress termination, the PBGC assumes the

6 A plan sponsor files a Form 5500 annually with the IRS to report on a retirement plan’s financial

conditions, investments, operations, and compliance.

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plan sponsor's pension plan, including all assets and liabilities. (Id. | 39.) In exchange, the PBGC

receives a statutory claim against the plan sponsor for a termination premium plus the amount

by which the plan is underfunded. (Id. { 40.) The amount by which the plan is underfunded is

based on the purchase price of an annuity sufficient to pay the liability into the future. (Id.)

There are four statutory provisions under which the PBGC may grant a distress

termination of a pension plan: (1) liquidation in bankruptcy or insolvency proceedings; (2)

reorganization in bankruptcy or insolvency proceedings; (3) termination required to enable

payment of debts while continuing in business; and (4) termination required to avoid

unreasonably burdensome pension costs caused by a declining workforce. (Id. {{ 46-47.)

Plaintiffs’ proposed PBGC experts, John Spencer and Joshua Gotbaum, plan to testify that

Altoona would have applied for the third type of distress termination, which they label the

“business continuation test.” (Id. { 48.) Under the business continuation test, the PBGC may

terminate a pension plan outside of bankruptcy if the plan sponsor demonstrates to the PBGC

that, “unless a distress termination occurs, such person will be unable to pay such person’s debts

when due and will be unable to continue in business.” (Id. J 346.)

2. The Distress Termination Application

To obtain a distress termination, Altoona would have had the burden of proof to convince

the PBGC that it qualified for a distress termination under the business continuation test. (Id. {

56.) Altoona would have been required to complete the PBGC’s Form 600 and Form 601 and

attendant schedules, which require information on a sponsor's projected finances and funding

contributions, available cash, and restructuring efforts. (Id. 1 57.)

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a. Projected Finances and Funding Contributions

The PBGC’s distress termination application requires the applicant to submit five years of

projected financial statements along with five years of projected Minimum Funding

Contributions. (Id. { 362.) Financial projections for Altoona show that from 2011 to 2015, the

hospital would have generated negative net cash flow of $31 million. (Id. | 363.) Combined with

Altoona’s pension obligations of approximately $100 million in the same five-year period,

Gotbaum stated that the net effect—a hole of roughly $130 million—would make Altoona

“certifiably in distress.” (Id. I] 364-65.)

Plaintiffs assert that the additional cash Altoona required to fund the Plans for plan years

2011 to 2015 would have totaled $66.38 million. (Id. [ 337.) This figure includes a combination

of the projected five-year minimum required contribution for the Altoona Plans, post January 1,

2010 freeze with a longer amortization period, and the estimated cost for replacing the Plans with

a 403(b) plan, minus the amount Altoona contributed to the Plans, on average, for the plan years

2008 to 2010. (Id.) Plaintiffs assert that if a shorter amortization period is assumed instead, the

total additional cash required increases to $75.217 million. (Id. J 345.)

Plaintiffs assert that Altoona would have offered a 403(b) plan to replace the Plans after a

hard freeze in order to attract and retain employees. (Id. { 332.) Plaintiffs assert that the PBGC

would have recognized the need for Altoona to pay for a replacement 403(b) plan and that the

cost for the 403(b) plan would have totaled $30 million. (Id. I] 333-34.)

b. Available Cash

The PBGC considers what resources, including unrestricted cash, an applicant has

available to satisfy ERISA’s funding requirements. (Id. 61.) Defendants assert that Altoona had

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unrestricted cash available to fund the Plans; Plaintiffs assert that Altoona did not have cash and

investments available to fund the Plans because most of Altoona’s liquid assets were designated

as Assets Limited as to Use. (Id. { 64.)

c. Restructuring Efforts

The PBGC application also requires the applicant to describe all financial and operational

restructuring actions the applicant has taken to address financial distress. (Id. J 62.) Spencer

testified that the PBGC would have found Altoona’s cost-cutting efforts to be sufficient and

Gotbaum testified that Altoona could not have undertaken any measures sufficient to close a $100

million-plus pension gap. (Id. 330, 372.) Plaintiffs assert that Altoona had little room for further

cost-cutting and specifically ruled out a 1-3% additional cut in expenses. (Id. [J 319, 327.)

d. Other Considerations

The parties disagree about other factors the PBGC considers. Gotbaum testified that the

PBGC, in assessing Altoona’s application, would have considered the fact that Altoona was a

health care provider, a non-profit, a major employer, and an innocent party; Defendants assert

that the PBGC would not have taken these facts into account. (Id. J 373, 375-77.)

Plaintiffs contend that Altoona would not have to provide information on prospective

purchasers because the PBGC’s distress termination application does not request such

information and that even if Altoona disclosed its discussions about affiliating with UPMC, the

PBGC would still have granted a distress termination. (Id. [J 392, 396.) UPMC alleges that had

it known of the revised pension liability, it would not have purchased Altoona, or would have

completed the purchase on substantially different terms. (Id. { 74.)

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Defendants assert that the PBGC also considers union objections to the requested

termination of a pension plan. (Id. { 84.) Defendants assert that if a union objects to the

termination under a collective bargaining agreement, the PBGC must suspend the termination

proceedings. (Id. J 86.) Plaintiffs assert that the PBGC considers only formal challenges to the

termination under an existing collective bargaining agreement. (Id. 84.) Gene Connors,

Altoona’s long-time labor attorney, testified that he would have secured the unions’ acceptance

of a hard freeze and replacement with a 403(b) plan. (Id. { 289.) Plaintiffs assert that no union

consent was necessary to implement the hard freeze. (Id. 259.)

3. The PBGC’s Review of a Distress Termination Application

At the PBGC, a “case team” composed of professionals within two PBGC departments—

the Department of Insurance Supervision and Compliance and the Office of the Chief Counsel—

evaluates a distress termination application to determine whether the application satisfies the

requirements for a distress termination. (Id. ] 96.) If the case team decides that the application

does not meet the standard, the PBGC denies the application. (Id. □ 97.) However, in cases where

the PBGC’s claim against a plan sponsor would be for more than $100 million, or which presents

anovel or significant policy issue, the Deciding Official ultimately has decision-making authority.

(Id.) The Deciding Official during the relevant time period was the PBGC’s Director, Joshua

Gotbaum. (Id. J 102.)

If the case team believes that the PBGC should grant the termination, it prepares a

recommendation for the Trusteeship Working Group (the “TWG”). (Id. { 98.) Barring certain

exceptions, all applications proceed through TWG review. (Id. 1 99.) However, when time is of

the essence and facts and circumstances make it impractical to convene a meeting of the TWG,

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the Chief Insurance Program Officer and the Chief Operating Officer may propose that the PBGC

terminate a plan by forwarding their recommendation to the PBGC Director, who may approve

the recommendation. (Id.) If the TWG approves the case team’s recommendation to terminate

the plan, the case team sends the application for concurrences and for review and decision by the

Deciding Official. (Id. | 104.) Defendants assert that for cases in which the unfunded liability

exceeds $100 million on a PBGC termination basis, at least eight PBGC officials must concur in a

recommendation to grant a termination. (Id. J 105.)

4, The Extent of PBGC Relief

The PBGC’s claim against Altoona would have consisted of the amount of the unfunded

liability associated with the Plans, calculated on a termination basis pursuant to PBGC

regulations, plus a termination premium, which is also calculated pursuant to PBGC regulations.

(Id. 109.) The amount of the PBGC’s claim against Altoona would vary depending on when

Altoona applied for and received the distress termination. (Id. { 117.) Spencer opines that the

PBGC would have settled its statutory claims against Altoona for 15 percent of the total amount

of the claims; Gotbaum opines that the settlement would have been for 6 percent. (Id. {J 108,

116.)

Plaintiffs’ proposed actuarial expert witness, John Lin, initially calculated the amount of

the Plans’ PBGC unfunded liability as of July 1, 2012 to be $225.7 million. (Jd. { 110.) Lin has

since lowered this amount to $175.3 million in supplemental reports. (Id. { 111.) Spencer

calculated the termination premium to equal $13.5 million. (Id. { 112.) Therefore, the PBGC’s

statutory claim against Altoona would have been approximately $188.8 million.

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Plaintiffs’ proposed damages expert, Neil Demchick, intends to testify that UPMC

Altoona suffered damages because Altoona lost its opportunity to receive a distress termination

from the PBGC. (Id. { 41.) To calculate UPMC Altoona’s damages, Demchick provides a

comparison of the hypothetical case in which Altoona received assistance to what actually

happened, where Altoona did not. (Id. { 42.) Demchick compares a hypothetical settlement with

the PBGC to the pension liability that the PBGC would have assumed as of a specific termination

date. (Id. | 43.) Demchick uses two dates for this comparison, June 30, 2012 and June 30, 2013,

and calculates damages ranging from $93.5 to $190.7 million. (Id. {1 44-45.)

When calculating future pension liability, a discount rate is applied to measure the present

value of future pension payments. (Id. { 124.) Lin testified that the appropriate discount rate

depends on the purpose of the measurement. (Id. [ 409.) Plaintiffs assert that GAAP standards

are used to measure Altoona’s balance sheet savings produced by terminating the Plans and

replacing them with a debt owed to the PBGC in a lesser amount; Defendants assert that ERISA

supplies the correct standard. (Id. {J 8, 410.) As of July 1, 2013, Altoona’s ASC 960 liability was

approximately $185 million, while the equivalent GAAP liability was over $258 million. (Id. J

127.) During the relevant period, ERISA prescribed a discount rate between the GAAP and ASC

960 rates. (Id. J 128.)

IV. Procedural Background

On September 16, 2016, Plaintiffs 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 Defendants. On September 10, 2019, Defendants moved for summary

judgment. (ECF No. 177.) Plaintiffs responded in opposition to the Motion on October 21, 2019

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(ECF No. 201), to which Defendants replied on November 27, 2019. (ECF No. 220.) The Court

held argument on the Motion for Summary Judgment on January 16, 2020.

V. Legal Standard

This Court will grant summary judgment “if the movant shows there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.

R. Civ. P. 56(a); Melrose, Inc. v. Pittsburgh, 613 F.3d 380, 387 (3d Cir. 2010) (quoting Ruehl v. Viacom,

Inc., 500 F.3d 375, 380 n.6 (3d Cir. 2007)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

There is a genuine issue of fact “if the evidence is such that a reasonable jury could return a verdict

for the nonmoving party.” Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 248 (1986); see

also McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). Material facts are those that affect the

outcome of the trial under governing law. Anderson, 477 U.S. at 248. The Court's role is “not to

weigh the evidence or to determine the truth of the matter, but only to determine if the evidence

of record is such that a reasonable jury could return a verdict for the nonmoving party.” Am.

Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009). In deciding a summary

judgment motion, this Court ““must view the facts in the light most favorable to the nonmoving

party and draw all inferences in that party's favor.’” Farrell v. Planters Lifesavers Co., 206 F.3d 271,

278 (3d Cir. 2000) (quoting Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994)).

The moving party bears the initial responsibility of stating the basis for its motion and

identifying those portions of the record that demonstrate the absence of a genuine issue of

material fact. Celotex, 477 U.S. at 323. If the moving party meets this burden, the party opposing

summary judgment “may not rest upon the mere allegations or denials” of the pleading, but

“must set forth specific facts showing that there is a genuine issue for trial.” Saldana v. Kmart

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Corp., 260 F.3d 228, 232 (3d Cir. 2001) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

U.S. 574, 587 n.11 (1986)). “For an issue to be genuine, the nonmovant needs to supply more than

a scintilla of evidence in support of its position—there must be sufficient evidence (not mere

allegations) for a reasonable jury to find for the nonmovant.” Coolspring Stone Supply v. Am. States

Life Ins. Co., 10 F.3d 144, 148 (3d Cir. 1993); see also Podobnik v. U.S. Postal Serv., 409 F.3d 584, 594

(3d Cir. 2005) (noting that a party opposing summary judgment “must present more than just

bare assertions, conclusory allegations or suspicions to show the existence of a genuine issue”).

VI. _—_‘ Discussion

A. Pennsylvania Law Applies to Plaintiffs’ Claims

In federal diversity cases, a federal court must apply the conflict of law rules of the forum

state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941). Pennsylvania

uses a “hybrid” choice of law approach that combines the “governmental interest analysis” with

the “most significant relationship” test. Carrick v. Zurich-Am. Ins. Grp., 14 F.3d 907, 909 (3d Cir.

1994) (citing Griffith v. United Air Lines, Inc., 203 A.2d 796 (Pa. 1964)). This approach requires the

Court to first determine whether there is a relevant difference between the law of the jurisdictions

whose laws potentially apply. Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230 (3d Cir. 2007). If the

laws of the jurisdictions are the same, there is no conflict at all, making a choice of law analysis

unnecessary, and the court may refer interchangeably to the laws of the states whose laws

potentially apply. Id.; Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006).

Here, the laws of either Pennsylvania or Maryland could apply to this case because the

Altoona acquisition took place in Pennsylvania and Ketzner performed his work in Maryland.

However, both parties cite to Pennsylvania law throughout their briefing and assert that there is

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no real conflict between the laws of these states. (See ECF No. 178 at 15; ECF No. 201 at 19.) The

Court agrees with the parties and finds that there is no real or actual conflict between

Pennsylvania and Maryland law. Therefore, because both parties focus their briefing on

Pennsylvania law and the Court finds no actual conflict between Pennsylvania and Maryland

law, the Court applies Pennsylvania law to Plaintiffs’ claims.

B. The Court Denies Defendants’ Motion for Summary Judgment as to Plaintiffs’

Malpractice and Lost Opportunity Claims

Defendants have moved for summary judgment on Plaintiffs’ malpractice and lost

opportunity claims. Defendants assert that these claims fail because: (1) they are too speculative;

(2) Altoona had sufficient funds to meet its increased funding obligation; (3) UPMC Altoona

suffered no damages as a result of Defendants’ calculations; and (4) the claims are preempted by

ERISA. The Court addresses each in turn.

1. Plaintiffs’ Malpractice and Lost Opportunity Claims Are Not

Speculative

a. The Parties’ Arguments

Defendants argue that the Court should dismiss Plaintiffs’ malpractice and □ lost

opportunity claims because they are based on improper speculation. (ECF No. 178 at 22.)

Plaintiffs rely on improper lay witness testimony to show that the PBGC would have granted

relief if Altoona applied for a distress termination. (Id. at 23.) Defendants assert that the

testimony from these witnesses lacks foundation and is not based on the witnesses’ perceptions.

(Id. at 24-26.) Plaintiffs’ witnesses have no factual basis or experience to support their opinion

because they never discussed or contemplated a distress termination for Altoona at any time. (Id.

at 27.)

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Defendants assert that if a jury relies on Plaintiffs’ witnesses’ testimony, the jury will have

to improperly speculate as to whether the PBGC would have granted Altoona relief. (Id. at 27.)

Specifically, Defendants contend that Plaintiffs ask the jury to improperly decide, based on

speculation, that: (1) Altoona would have pursued the application in the first place; (2) Altoona

could not have undertaken restructuring or cost cutting measures in order to fund its increased

pension obligation; (3) no third parties would have acquired Altoona and assumed any portion

of the pension liability; (4) Altoona’s two unions would have consented to the termination of their

pension benefits; and (5) the PBGC would have granted the bailout. (Id. at 28, 29, 31, 33, 35.)

Defendants argue that Plaintiffs have not presented sufficient evidence from which a reasonable

jury could conclude, without improperly speculating, that all of these decisions would have led

to PBGC relief. (Id.)

Defendants argue that even if Plaintiffs can show they would have obtained PBGC relief,

the extent of the relief would be speculative because the amount Plaintiffs claim as damages— 85

percent of Altoona’s pension liability—is only a guess. (Id. at 37-38.) Plaintiffs’ experts do not

provide the jury with sufficient information to arrive at an amount of damages because the

amount would change depending on the date Altoona applied for and received a distress

termination. (Id.) Plaintiffs’ experts only calculated the termination amount for two days over a

four-year period, which does not provide the jury with a sufficient basis to calculate damages if

Altoona would have obtained the relief on another date. (Id.)

Plaintiffs respond that the Court should not dismiss their malpractice and lost

opportunity claims because their damages are non-speculative and provable to a reasonable

degree of certainty. (ECF No. 201 at 47.) Plaintiffs’ damages stem from Defendants’ malpractice,

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which prevented Altoona from pursuing and obtaining PBGC relief. (Id. at 31.) Plaintiffs assert

that had Altoona been presented with accurate information about its pension liability, it would

have terminated the Plans and sought PBGC relief. (Id.) In fact, Altoona weighed termination of

the Plans in both 2008 and 2012. (Id. at 32.) Plaintiffs assert that Altoona would have placed a

hard freeze on the Plans in early 2010 and replaced them with a 403(b) plan after securing the

union’s acceptance. (Id. at 33.)

Plaintiffs next assert that they have produced sufficient evidence to show that the PBGC

would likely have granted Altoona’s application. (Id. at 50.) Specifically, the testimony of both

Spencer and Gotbaum support Plaintiffs’ assertion that the PBGC would have granted Altoona

relief. (Id. at50-51.) Plaintiffs contend that Altoona would not have needed to prove to the PBGC

that it was on the verge of liquidation to receive a distress termination. (Id. at 52.) Plaintiffs assert

that they can show that Altoona’s unions would have consented to the bailout because the likely

alternative of bankruptcy would have been far worse. (Id. at 53.) The PBGC would have still

provided relief, even in the face of a possible third-party acquisition of Altoona. (Id. at 55.)

Additionally, had UPMC known of Altoona’s true pension liabilities, UPMC would have waited

for Altoona to receive a distress termination from the PBGC before proceeding with an

acquisition. (Id.) Finally, Plaintiffs argue that Defendants’ disagreement with Plaintiffs’ experts’

estimates of the terms of the distress termination between Altoona and the PBGC is a factual

dispute that precludes summary judgment. (ld. at 52.)

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b. Plaintiffs Can Show that They Suffered Non-Speculative

Damages

Under Pennsylvania law, a plaintiff cannot recover damages that are “too speculative,

vague or contingent.” Spang & Co. v. U.S. Steel Corp., 545 A.2d 861, 866 (Pa. 1988). Additionally,

a plaintiff cannot recover damages beyond those which can be established with “reasonable

certainty.” Id. Some speculation regarding damages is permissible, as evidence of damages may

consist of probabilities and inferences and need not be “completely free of all elements of

speculation” or proved with “mathematical certainty.” Delahanty v. First Pa. Bank, N.A., 464 A.2d

1243, 1257 (Pa. Super. Ct. 1983). Damages are improperly speculative only if the uncertainty

concerns the existence of damages rather than the amount of damages. Rizzo v. Haines, 555 A.2d

58, 68 (Pa. 1989). A plaintiff must show a “reasonable basis” for the amount of damages claimed.

Id.

Here, Plaintiffs have shown that the damages they claim are not speculative and that they

can establish them with reasonable certainty. Plaintiffs claim that Defendants’ errors in reporting

its true pension liabilities harmed them because the errors prevented Altoona from seeking and

obtaining PBGC relief, which caused Plaintiffs to pay off liabilities they could have avoided. A

claim of this nature cannot be entirely free of speculation on the part of the jury because the claim

requires them to assess the “case within a case:” but for the malpractice, the plaintiff would have

been successful in its underlying action, which here is Altoona’s distress termination application.

See Kituskie v. Corbman, 714 A.2d 1027, 1030 (Pa. 1998). The speculation with which Defendants

take issue is the fact-finding function of the jury. Determining what would have happened had

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Altoona been provided accurate pension liability numbers necessarily involves determining

questions of fact that cannot be answered as a matter of law.

Plaintiffs have introduced sufficient evidence to meet their burden of production to show

a jury that but for Defendants’ malpractice, Altoona would have applied for and received PBGC

relief. The extent of the damages Plaintiffs allege is not speculative and can be established

through both expert and lay witness testimony. Plaintiffs provide a reasonable basis for their

damages calculation and it will be up to the jury to determine the terms on which the PBGC

would have granted relief and the damages Plaintiffs suffered as a result.

2. Plaintiffs Can Show that Altoona Did Not Have Sufficient Funds to

Meet the Revised Pension Funding Obligation

a. The Parties’ Arguments

Defendants argue that Plaintiffs’ lost opportunity claim fails because Altoona had

sufficient funds available to meet the Revised Pension Funding Obligation without resort to a

PBGC bailout. (ECF No. 178 at 42.) Defendants assert that no reasonable jury could conclude

that the PBGC would have granted Altoona a distress termination by June 30, 2013, because

Altoona could afford to pay the Revised Pension Funding Obligation from 2009 through 2013.

(Id. at 42-43.) The Revised Pension Funding Obligation would not have caused Altoona to cease

operations because Altoona contributed more in pension funding from 2009 through 2013 than

what it would have owed under the Revised Pension Funding Obligation during that period. (Id.

at 43.) Defendants assert that under an ERISA measure of pension liability, Altoona had sufficient

cash on hand to meet its funding obligations. (Id. at 47.) Altoona made actual contributions to

its pension plan from 2008 to 2012 in an amount millions of dollars greater than ERISA required

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under the Revised Pension Funding Obligation with a plan freeze. (Id. at 48.) Plaintiffs cannot

show that the Revised Pension Funding Obligation would have forced Altoona into liquidation

or induced the PBGC to grant a bailout because Altoona could make its payments under the

Revised Pension Funding Obligation. (Id.) Moreover, Defendants assert that Altoona could have

used its millions of dollars in unrestricted cash in its accounts to pay pension obligations and

could also have reduced its annual expenses to create millions of dollars in savings to put into its

pension fund. (Id. at 48-49.) Therefore, the PBGC would not have granted a distress termination

and Plaintiffs’ claim fails. (Id. at 49.)

Plaintiffs first respond that ERISA measures do not govern their claims for damages

because that measure applies only to plan participants bringing claims under ERISA and

Plaintiffs are neither plan participants nor bringing claims under ERISA. (ECF No. 201 at 62-63.)

Instead, Plaintiffs’ damages stem from claims of malpractice and breach of contract outside of

ERISA. (Id. at 65.) Plaintiffs assert that, like any other case, the determination of damages is for

. the jury and the jury must decide whether ERISA or GAAP measures are the appropriate

standard to value the Plans’ liabilities. (Id.) If the jury accepts GAAP measures, then Plaintiffs’

damages and liabilities would be higher than they would be under ERISA measures. (Id. at 63.)

Plaintiffs contend that regardless of the measure of damages used, Plaintiffs would be able to

show that Altoona could not afford to pay its debts and would qualify for PBGC relief. (Id. at 65.)

Plaintiffs assert that Defendants’ calculation of Altoona’s pension liabilities after a hard

freeze understates Altoona’s actual liability because Defendants have ignored the cost of

implementing the 403(b) replacement plan. (Id. at 42.) Altoona would have implemented the

403(b) plan to replace the Plans; the 403(b) plan would add approximately $30 million to

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Altoona’s pension obligation for the relevant time period. (Id. at 43.) Adding the 403(b) plan to

the pension liabilities calculation makes it even less likely that Altoona would have been able to

survive without PBGC relief because Altoona was already in serious financial distress. (Id. at 45.)

Plaintiffs also assert that a jury should resolve the numerous analytical disputes about the extent

of Altoona’s liabilities. (Id. at 46.)

Finally, Plaintiffs assert that whether Altoona could have survived without PBGC relief is

a question of fact for the jury to decide. (Id. at 36.) Plaintiffs assert that Altoona did not have

sufficient unrestricted cash to cover the increased pension liability resulting from Defendants’

malpractice and that Altoona could not afford to pay its debts, as evidenced by Standard & Poor’s

rating of Altoona’s liquidity as “weak” in December of 2011. (Id. at 37.) Altoona could not use

any material portion of its unrestricted cash to fund its pension plans because diverting

substantial funds to the Plans would have required drastic cuts to its hospital operating budget,

crippling Altoona’s ability to function as a hospital. (Id. at 38.) Additionally, Plaintiffs assert that

most of Altoona’s liquid assets were already restricted to other specific uses and could not be

used to fund pensions. (Id.) Plaintiffs contend that Altoona could not feasibly take cost-cutting

and restructuring measures, as evidenced by the fact that Altoona reduced expenses in 2009 and

2010 and these cuts were still not enough to overcome its operating losses in 2011. (Id. at 40-41.)

Plaintiffs argue that further cost cutting would have led to a spiraling downward effect and

eventual bankruptcy. (Id. at 41-42.)

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b. Genuine Disputes of Fact About Altoona’s Financial Health

Preclude Summary Judgment

As a preliminary matter, Plaintiffs are not restricted to ERISA measures for measuring

their damages. Defendants assert that Perelman v. Perelman, 793 F.3d 368 (3d Cir. 2015) stands for

the proposition that ERISA measures govern the measure of damages in this case. It does not.

Perelman was a case in which a plan participant alleged an injury under ERISA and sought to use

anon-ERISA measure of damages. Id. at 375. The Third Circuit held that the plaintiff was bound

to ERISA measures for his damages claim because he was a plan participant and brought a claim

under ERISA. Id. Plaintiffs in this case are neither bringing statutory claims under ERISA nor

are they plan participants. Plaintiffs’ damages arise from claims of malpractice and breach of

contract outside of ERISA, for which ERISA does not mandate a specific measure by which to

calculate damages. ERISA may provide a measure of damages in this case, but that measurement

is not the only possible one and a jury need not accept it. A jury could find that ERISA measures

understate the alleged harm to Plaintiffs and choose to adopt another measure.

For an ERISA plan sponsor to obtain relief from the PBGC, the sponsor must show that it

would have been unable to pay its debts when due and unable to continue in business. 29 U.S.C.

§ 1341(c)(2)(B)(iii)(I). Here, Plaintiffs can show that Altoona did not have sufficient funds to meet

its funding obligations. Plaintiffs can show that Altoona was already operating at a loss, even

with understated pension liability and that Altoona would have been unable to make increased

pension funding payments. Plaintiffs assert that had Altoona known of its true liabilities, the

downward spiral at Altoona would have accelerated and caused Altoona to freeze the Plans and

seek PBGC relief.

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The Court holds that numerous factual disputes about Altoona’s financial situation

preclude summary judgment on these grounds. For example, Defendants say that Altoona could

have made additional budget cuts to fund its pensions; Plaintiffs say this was not feasible.

Defendants state that Altoona had unrestricted cash that it could repurpose to fund its pensions;

Plaintiffs state that the funds were restricted. Plaintiffs also assert that Defendants’ calculations

ignore the cost of a 403(b) replacement plan, which would have added further financial stress to

Altoona. The Court holds that these facts are both disputed and material and that summary

judgment is therefore improper.

3. UPMC Altoona Can Show that It Suffered Damages

a. The Parties’ Arguments

Defendants argue that the Court must dismiss Plaintiffs’ malpractice and lost opportunity

claims because UPMC Altoona did not suffer any actual damages. (ECF No. 178 at 50.) When

UPMC assumed Altoona’s pension liability at closing on July 1, 2013, UPMC Altoona did not

have to pay the pension liability the PBGC would have assumed because UPMC assumed that

liability. (Id. at 50-51.) UPMC Altoona therefore received the very same relief from UPMC that

it would have received from the PBGC—third party assumption of its pension liability. (Id.)

UPMC Altoona cannot recover the monies contributed to the Plans by its parent UPMC as

damages. (Id.) If the PBGC assumed 85 percent of Altoona’s pension liability, the amount UPMC

Altoona would have been responsible for before the plans merged is more than what UPMC

Altoona actually paid during that time without PBGC relief. (Id. at 52.)

Plaintiffs respond that the Court should not dismiss their claims because the Court has

already rejected Defendants’ argument that UPMC Altoona suffered no damages in denying

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Defendants’ motion to dismiss. (ECF No. 201 at 66.) Plaintiffs assert that Defendants’ malpractice

caused damages to both UPMC Altoona and UPMC. (Id. at 67.) Specifically, UPMC Altoona

suffered damages from the increase in pension liability caused by not freezing the Plans and

applying for PBGC relief (Counts One and Two). (Id.) UPMC suffered damages from the added

direct pension liability or, alternatively, the decreased value of Altoona (Count Three). □□□□□

Plaintiffs argue that the fact that UPMC Altoona paid more in pension contributions than it would

have if it had obtained PBGC relief is irrelevant because Defendants do not account for the fact

that UPMC would not have acquired Altoona had it known the true measure of its pension

liabilities. (Id. at 68.) If UPMC had not acquired Altoona, then Altoona would have applied for

PBGC relief, which is what UPMC Altoona claims as damages. (Id.)

b. UPMC’s Acquisition of Altoona Did Not Eliminate UPMC

Altoona’s Damages Claim

For a plaintiff to sustain a malpractice damages claim, the plaintiff must introduce proof

of actual loss. Kituskie, 714 A.2d at 1030. For example, in legal malpractice actions, actual losses

are measured by the judgment the plaintiff lost in the underlying action because of the defendant

lawyer's malpractice. Id. In this case, the “judgment” Plaintiffs allege that they lost was a distress

termination from the PBGC.

Here, UPMC Altoona can show that it suffered actual losses as a result of Defendants’

alleged negligence. Plaintiffs allege that UPMC Altoona suffered damages from the increased

pension liability caused by not freezing the plans and applying for PBGC relief. This is an

allegation of actual loss because Plaintiffs allege that, if not for Defendants’ alleged malpractice,

Altoona would not have had to fund the Plans for a period that they actually did. The fact that

-27-

UPMC acquired Altoona does not preclude UPMC Altoona’s damages claim because those

damages are independent of UPMC’s actions and Altoona would have suffered them had UPMC

not acquired Altoona. Plaintiffs allege that had Altoona and UPMC known the true extent of

Altoona’s liabilities, UPMC would not have acquired Altoona on the terms it actually did, if at

all. UPMC Altoona’s lost opportunity to have Altoona’s pension liability avoided is an actual

loss UPMC Altoona suffered. As discussed above, supra Section VI.B.1.b, Plaintiffs can show that

they suffered damages and these damages are provable with reasonable certainty.

4, ERISA Does Not Preempt Plaintiffs’ Malpractice and Lost Opportunity

Claims

a. The Parties’ Arguments

Defendants argue that the Court should dismiss Plaintiffs’ malpractice and lost

opportunity claims because ERISA preempts them. (ECF No. 178 at 53.) Defendants assert that

Plaintiffs’ claims are preempted because they “relate” to an ERISA benefit plan, meaning that the

claims require an analysis and application of ERISA’s statutory test for distress termination and

an interpretation of Altoona’s ERISA plans. (Id. 55.) Because applying an ERISA analysis could

implicate funding, benefits, reporting, and administration of an ERISA plan, Plaintiffs’ claims

relate to ERISA and are therefore preempted. (Id. at 56.)

Plaintiffs respond that ERISA does not preempt their claims because ERISA does not

generally apply to professional malpractice actions brought by a plan sponsor. (ECF No. 201 at

59.) Plaintiffs contend that preemption does not apply simply because an ERISA plan is involved

in the case. (Id. at 60.) Plaintiffs’ malpractice claim that Defendants, as service providers to the

Plans, were negligent does not “relate” to the Plans because the claim looks at Defendants’

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conduct independent of ERISA. (Id. at 61.) The lost opportunity claim also does not relate to

ERISA because it does not require extensive analysis of the Plans and instead relies on testimony

concerning Altoona’s willingness and ability to obtain a distress termination from the PBGC. (Id.)

Plaintiffs assert that Defendants miss the distinction between claims brought by plan sponsors

and claims brought by beneficiaries; while ERISA preempts beneficiary claims, it does not

preempt plan sponsor claims. (Id. at 62.) Additionally, Plaintiffs assert that preempting their

claims serves no ERISA purpose because state law malpractice claims filed by an ERISA plan

sponsor do not undermine the congressional policies that underlie ERISA. (Id. at 60.) Instead,

Defendants’ interpretation of ERISA preemption would only immunize Defendants because

ERISA does not provide a remedy that would replace the state law malpractice remedy based on

these facts. (Id.)

b. Plaintiffs’ Claims Do Not Relate to an Employee Benefit Plan

ERISA preempts all state laws insofar as they “relate to any employee benefit plan” that

the statute covers. N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.

645, 651 (1995) (quoting 29 U.S.C. § 1144(a)). However, a state law does not relate to an ERISA

plan if the connection is “too tenuous, remote, or peripheral.” Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 100 n.21 (1983). In assessing the strength of a connection to an ERISA plan, courts

consider: (1) whether the state law represents a traditional exercise of state authority; (2) whether

the state law affects relations among the principal ERISA entities—the employer, the plan, the

plan fiduciaries, and the beneficiaries —rather than relations between one of these entities and an

outside party, or between two outside parties with only an incidental effect on the plan; and (3)

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whether the effect of the state law upon the ERISA plan is direct or merely incidental. Travitz v.

Ne. Dep't ILGWU Health & Welfare Fund, 13 F.3d 704, 709-10 (3d Cir. 1994).

ERISA does not preempt professional malpractice actions brought by a plan sponsor

because such actions are unlikely to interfere with plan administration and do not implicate the

funding, benefits, reporting, or administration of an ERISA plan. Kollman v. Hewitt Assocs., LLC,

487 F.3d 139, 148 (3d Cir. 2007) (citing Painters of Phila. Dist. Council No. 21 Welfare Fund v. Price

Waterhouse, 879 F.2d 1146, 1153 n. 7 (3d Cir. 1989). However, ERISA preempts malpractice claims

brought by plan beneficiaries because ERISA itself contains a civil enforcement scheme for plan

beneficiaries. Id. at 150 (citing 29 U.S.C. § 1132(a)).

Here, ERISA does not preempt Plaintiffs’ malpractice and lost opportunity claims because

they do not relate to the administration of an ERISA benefit plan. The mere fact that an ERISA

plan is a part of Plaintiffs’ claim is not enough to trigger ERISA preemption. Plaintiffs’

malpractice claim focuses on Defendants’ conduct as actuarial service providers and does not

involve the administration of an ERISA plan. Plaintiffs’ lost opportunity claim also does not relate

to ERISA because it does not require extensive analysis of the Plans; instead it focuses on how the

PBGC would have assessed Altoona’s distress termination application. Plaintiffs’ claims are

between an ERISA plan sponsor and a third-party actuary; they do not affect how ERISA plans

are administered. Plaintiffs’ lost opportunity claim is brought under state contract law, a separate

area of law from that which ERISA was intended to regulate. Therefore, ERISA does not preempt

Plaintiffs’ malpractice and lost opportunity claims.

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C. The Court Denies Defendants’ Motion for Summary Judgment as to Plaintiffs’

Negligent Misrepresentation Claim

1. The Parties’ Arguments

Defendants argue that Plaintiffs’ negligent misrepresentation claim fails because

Defendants lacked actual knowledge that UPMC intended to rely on the Ketzner Report when

acquiring Altoona. (ECF No. 178 at 61.) Defendants assert that Pennsylvania law rejects a

foreseeability standard, instead requiring a defendant to have actual knowledge of a plaintiff's

intended reliance. (Id. at71.) Defendants assert that they lacked actual knowledge of any pending

acquisition of Altoona by a third party prior to the public announcement in November 2012—

two months after Defendants issued the Ketzner Report. (Id. at 61.) Defendants also maintain

that they were unaware that any party other than Altoona would rely on the Ketzner Report. (Id.

at 63, 74.) Defendants argue that the existence of rumors about Altoona’s possible acquisition do

not constitute actual knowledge and that there is also no evidence that Defendants heard any

rumors about the acquisition before they issued the Ketzner Report. (Id. at 70.)

Plaintiffs respond that the Court should not dismiss their negligent misrepresentation

claim because they can meet the knowledge burden by showing that Defendants knew that any

one of several entities might affiliate with Altoona. (ECF No. 201 at 73.) Plaintiffs contend that

Pennsylvania law does not require actual knowledge as part of a negligent misrepresentation

claim and that Pennsylvania courts have rejected this requirement for such claims. (Id. at 73-74.)

Plaintiffs assert that the record shows that there is substantial evidence that Defendants knew of

a potential affiliation by Altoona before the public announcement. (Id. at 80.) For example, in

January 2012, Defendants had an electronic alert for all news related to “Altoona Regional Health

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System” and Defendants forwarded press coverage of Altoona to Ketzner. (Id. at 81.) Defendants’

files included newspaper articles from March 2012 regarding Altoona’s potential affiliation with

two other hospitals and a potential partnership with, or acquisition by, UPMC, Geisinger, or

Highmark. (Id. at 82.) In August 2012, Zorger emailed Ketzner and asked for CBIZ actuarial

numbers to be used for a pro forma financial statement to be prepared in connection with “an

affiliation” with Altoona. (Id. at 83.) Moreover, Plaintiffs assert that disputed questions of CBIZ’s

knowledge of Altoona’s affiliation are for the trier of fact. (Id. at 72.)

Plaintiffs argue that Defendants’ role in UPMC’s due diligence in 2013 is an independent

basis for liability because Ketzner was required to be truthful to UPMC and he was not truthful

because he failed to disclose his methodology in the Ketzner Report. (Id. at 78.) Plaintiffs assert

that Defendants supplied false information to UPMC because, as part of UPMC’s due diligence,

Ketzner submitted the Ketzner Report to UPMC with a written certification that there were no

defects in the Altoona plans, although there were defects in it. (Id. at 84-85.) Plaintiffs contend

that Defendants are liable for UPMC’s damages because, after UPMC announced the acquisition

November 2012, Defendants did not correct the Ketzner Report before the transaction closed

seven months later. (/d. at 78.)

2. Plaintiffs Can Show that Defendants Knew Others Outside of Altoona

Would Rely on the Ketzner Report

The Pennsylvania Supreme Court has expressly adopted Section 552 of the Restatement

(Second) of Torts (“Section 552”) for negligent misrepresentation claims. See Bilt-Rite Contractors,

Inc. v. Architectural Studio, 866 A.2d 270, 287 (Pa. 2005). To establish liability under Section 552,

a plaintiff must show that: (1) the defendant is in the business of supplying information for the

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guidance of others and the information provider has a pecuniary interest in the transaction; (2) _

the information provided is false; (3) the plaintiff justifiably relied upon the information; and (4)

the defendant failed to exercise reasonable care in obtaining or communicating the information.

Excavation Techs., Inc. v. Columbia Gas Co. of Pa., 936 A.2d 111, 115-16 (Pa. Super. Ct.

2007), aff'd, 985 A.2d 840 (Pa. 2009). The information provider can only be liable to those persons

who: (1) the information provider knows exist; (2) are contemplating a specific commercial

transaction the information provider knows about; and (3) the information provider intends to

influence that transaction by using the provider's information. Id. However, an information

supplier’s liability for negligent misrepresentation does not depend on the supplier’s knowledge

of the recipient's identity. Brand Mktg. Grp. LLC v. Intertek Testing Servs., N.A., Inc., 801 F.3d 347,

354-55 (3d Cir. 2015) (citing Bilt-Rite, 866 A.2d at 286). A plaintiff needs to show only that the

information provider knew someone aside from the contracted party would rely on the

information. Id. at 355. An information provider is liable “where it is foreseeable that the

information will be used and relied upon by third persons, even if the third parties have no direct

contractual relationship with the supplier of information.” Bilt-Rite, 866 A.2d at 287.

Here, Plaintiffs have introduced sufficient evidence to show that Defendants knew that

Altoona intended to supply the Ketzner Report to other entities and that those other entities

would rely on the report's information. Plaintiffs do not need to show that Defendants knew of

the UPMC affiliation specifically, but instead only that Defendants knew Altoona was planning

an affiliation and that the affiliating party would rely on the Ketzner Report in that transaction.

Plaintiffs allege two courses of conduct that make up their negligent misrepresentation claim.

First, Plaintiffs assert that Defendants knew that Altoona was planning an affiliation and that a

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third party in connection with the affiliation would rely on their report. Specifically, Plaintiffs

can show that before the Ketzner Report was issued, and before the UPMC affiliation was

officially announced, Altoona asked Ketzner for CBIZ actuarial numbers to be used for a financial

statement to be prepared in connection with “an affiliation” with Altoona. Under Section 552, it

does not matter that this affiliation discussed was not the UPMC affiliation. Instead what matters

is that Plaintiffs can show that Defendants knew that an entity other than Altoona would rely on

their actuarial numbers. This evidence is sufficient to satisfy Plaintiffs’ burden of production for

the knowledge requirement of Plaintiffs’ negligent misrepresentation claim.

Second, Plaintiffs assert that Defendants directly provided UPMC with false information

when Ketzner sent UPMC the Ketzner Report in connection with its due diligence as part of the

Altoona acquisition and certified that it was accurate. Although no contract existed between the

parties, Defendants had a duty under Section 552 to not provide UPMC with false information.

Plaintiffs can show that Defendants knew that UPMC would use the Ketzner Report in

performing its due diligence and that Defendants failed to correct any errors in the Ketzner

Report before the UPMC transaction closed. Plaintiffs’ evidence of Defendants’ knowledge

during the due diligence period is also sufficient to satisfy Plaintiffs’ burden of production for

their negligent misrepresentation claim.

Defendants dispute Ketzner’s knowledge of the affiliation and assert that none of the facts

Plaintiffs point to can establish his knowledge. However, a party’s knowledge is a question of

fact for the jury to determine. For the purposes of the Motion, the Court assesses the sufficiency

of the evidence introduced by Plaintiffs, not its weight. The Court holds that a jury could find

that Defendants knew that entities other than Altoona would rely on the Ketzner Report.

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D. The Court Denies Defendants’ Motion for Summary Judgment as to CBIZ, Inc.

1. The Parties’ Arguments

Defendants argue that CBIZ, Inc., should not be a party in this case because Ketzner was

not an agent or employee of CBIZ, Inc., and Plaintiffs do not allege that CBIZ, Inc., took any

improper actions. (ECF No. 178 at 78.) Defendants assert that Plaintiffs offer no evidence that

CBIZ, Inc., controlled the issuance of Ketzner’s actuarial reports. (ECF No. 220 at 55.) CBIZ □□□□

not CBIZ, Inc., issued the reports and the contract identified only CBIZ B&l as the contracting

entity. (Id.)

Plaintiffs respond that CBIZ, Inc., is liable because Ketzner was an agent of both CBIZ B&l

and CBIZ, Inc. (ECF No. 201 at 90.) The contract between Altoona and CBIZ, under which

Ketzner performed his actuarial work, shows that the “CBIZ” in the contract referred to CBIZ,

Inc., because it described the “CBIZ” in the contract as a publicly traded company and CBIZ, Inc.,

not CBIZ B&I, is a publicly traded company. (Id. at 91.) Moreover, representatives of CBIZ, Inc.,

prepared the contract and received it after it was executed. (Id. at 91-92.) The terms of the

contract lead to the inference that Ketzner, as part of the “CBIZ Staff,” was acting as an agent for

CBIZ, Inc. (Id.) Plaintiffs assert that there is evidence that Ketzner was an agent of CBIZ, Inc.,

under three theories of agency: actual authority, apparent authority, and agency by estoppel. (Id.

at 92-93.) For example, numerous documents authored by both Ketzner and Defendants identify

him as being part of CBIZ, Inc., including his personnel files and his bio on the CBIZ website. (Id.

at 93.) Plaintiffs assert that Altoona and UPMC relied on the fact that CBIZ held itself out as a

nationwide, publicly traded company, a characteristic of CBIZ, Inc., not CBIZ B&I. (Id. at 94.)

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Plaintiffs assert that neither CBIZ, Inc., nor CBIZ B&I supervised Ketzner or provided the

peer review of his work that industry standards require. (Id.) Even if CBIZ, Inc., did not employ

Ketzner, CBIZ, Inc., still had a duty and obligation to ensure that Ketzner’s services met basic

industry standards. (Id. at 95.)

2. Plaintiffs Can Show that Ketzner Was an Agent of CBIZ, Inc.

Under Pennsylvania law, the liability of a principal to third parties for the acts of its agent

can be established based on either: “(1) express authority, or that which is directly granted; (2)

implied authority, to do all that is proper, usual and necessary to the exercise of the authority

actually granted; (3) apparent authority, as where the principal holds one out as agent by words

or conduct, and (4) agency by estoppel.” Apex Fin. Corp. v. Decker, 369 A.2d 483, 485 (Pa. Super.

Ct. 1976). Whether an agency relationship exists is a question of fact for the jury. Bolus v. United

Penn Bank, 525 A.2d 1215, 1221 (Pa. Super. Ct. 1987).

Here, a reasonable jury could conclude that Ketzner was an agent of CBIZ, Inc., under a

theory of either express authority, apparent authority, and agency by estoppel. Plaintiffs have

introduced evidence from which a jury could find that Ketzner had authority to act on behalf of

CBIZ, Inc., or that Defendants held him out to Altoona or UPMC as an agent of CBIZ, Inc. The

existence of an agency relationship between Ketzner and CBIZ, Inc., is a question of fact for which

Plaintiffs have introduced sufficient evidence from which a jury could find a relationship to exist.

Because the parties dispute the facts concerning Ketzner’s relationship with CBIZ, Inc., the Court

cannot grant summary judgment.

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VII. Conclusion

For the forgoing reasons, the Court denies Defendants’ Motion.

An appropriate order follows.

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

UPMC d/b/a UNIVERSITY OF ) Case No. 3:16-cv-204

PITTSBURGH MEDICAL CENTER, and __)

UPMC ALTOONA f/k/a ALTOONA ) JUDGE KIM R. GIBSON

REGIONAL HEALTH SYSTEM, )

)

Plaintiffs, )

)

v. )

)

CBIZ, INC., CBIZ BENEFITS & )

INSURANCES SERVICES, INC., and )

JON S. KETZNER, )

)

Defendants. )

Lh ORDER

AND NOW, this . 30 ) day of January, 2020, upon consideration of Defendants’ Motion for

Summary Judgment (ECF No. 177), and for the reasons set forth in the accompanying

Memorandum Opinion, it is HEREBY ORDERED that said Motion is DENIED.

BY THE COURT:

ZR Nae

KIM R. GIBSON

UNITED STATES DISTRICT JUDGE