Saint Peter’s University Hospital, Inc. v. Horizon Healthcare Services, Inc. (079097) (Middlesex County and Statewide)
165 A.3d 729
N.J.2017Background
- Horizon Healthcare implemented OMNIA, a two-tiered network favoring seven “Tier 1” Alliance hospitals; Tier 2 placement reduced hospitals’ reimbursement and patient volume.
- Horizon retained McKinsey to help develop OMNIA and to score hospitals; plaintiffs allege Horizon manipulated criteria or preselected partners to exclude them from Tier 1.
- Saint Peter’s and Capital Health (and other hospitals) sued Horizon alleging breach of their network hospital agreements and breach of the implied covenant of good faith and fair dealing, among other claims.
- Chancery judges ordered expedited discovery and entered confidentiality orders; judges compelled production of McKinsey’s report, hospital scores, Alliance agreements, board minutes, and communications with Alliance partners subject to protective limitations.
- The Appellate Division reversed the discovery orders, finding the discovery overbroad and that Horizon’s confidentiality interests outweighed plaintiffs’ need; it also stayed further discovery. The Supreme Court granted leave and reviewed the interlocutory appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether discovery of McKinsey report, scoring, Alliance agreements, and related communications was relevant to plaintiffs’ contract and implied-covenant claims | These materials reveal the methodology, timing, participant decisions, and potential preselection or post-hoc changes to criteria—directly relevant to showing breach and bad faith | Materials are proprietary, confidential, and irrelevant to the pleaded claims; disclosure would harm competitive interests | Trial judges correctly found relevance; disclosure was permissible when protected by confidentiality orders; Appellate Division erred by reweighing merits against discoverability |
| Standard for appellate review of discovery orders | N/A (plaintiffs urge deference to trial court determinations) | N/A (defendant sought appellate intervention) | Appellate review is for abuse of discretion; appellate courts must defer to trial judges and not substitute their view of likelihood of success when relevance and protections exist |
| Sufficiency of confidentiality orders to protect proprietary information | Confidentiality orders limiting recipients prevent competitive misuse and allow discovery of relevant materials | Confidentiality orders are insufficient to prevent competitive harm; protection must outweigh disclosure | Confidentiality orders here were deemed adequate; parties must show specific, articulated harm to overcome discoverability presumption |
| Whether Appellate Division could deny discovery based on judge’s view of merits | N/A | Appellate panel argued plaintiffs’ claims were weak and therefore discovery was unnecessary | Court held that appellate panel improperly used its merits assessment to negate relevance; merits skepticism is not a permissible substitute for the discovery standard |
Key Cases Cited
- Payton v. N.J. Tpk. Auth., 148 N.J. 524 (1997) (discovery rules favor broad pretrial disclosure; relevancy presumption can be overcome by showing privilege or good cause)
- Hammock by Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356 (1995) (party withholding discovery must specify why confidentiality outweighs presumption of disclosure)
- Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344 (2011) (appellate standard: defer to trial court discovery rulings absent abuse of discretion)
- Jenkins v. Rainner, 69 N.J. 50 (1975) (policy favoring full disclosure to achieve essential justice)
- Capital Health Sys., Inc. v. Horizon Healthcare Servs., Inc., 446 N.J. Super. 96 (App. Div. 2016) (Appellate Division decision reversing trial discovery orders; reviewed and reversed by the Supreme Court)