Appellate Court’s View That Merits of a Case Are Weak Does Not Justify Abandoning Deferential Standard of Review of Trial Level Discovery Rulings

Capital Health System, Inc. v. Horizon Healthcare Services, Inc., ___ N.J. ___ (2017).  These two consolidated cases involved rulings on discovery disputes, a subject that rarely reaches the Supreme Court.  Four Justices did not participate, so the Court deciding this case consisted of Chief Justice Rabner, Justices LaVecchia and Albin, and Judges Fuentes and Fisher.  Judge Fisher wrote the opinion of the Court.

Defendant Horizon is New Jersey’s largest health insurer.  Horizon operates a two-tiered provider hospital system that is known as OMNIA.  In these two cases, the plaintiff hospitals sued Horizon on breach of contract and tort theories, asserting that plaintiffs were wrongly placed into Tier 2, rather than the more advantageous Tier 1, and that Horizon’s tiering procedures “were pre-fitted or wrongly adjusted to guarantee selection of certain larger hospitals [known as “Alliance” hospitals] for the preferential Tier 1.”  According to plaintiffs, Tier 1 was better for hospitals because Horizon had “adopted strong financial incentives” to encourage subscribers to go to Tier 1 hospitals, and Horizon had “aggressively promoted Tier 1 hospitals as providing better care at a lower cost.”

Horizon had retained an outside consulting firm, McKinsey & Company, to prepare a report that would help identify hospitals to be named as Alliance members.  Plaintiffs in both cases, which were venued in Chancery in two different counties, sought the McKinsey report, along with other, related documents.  After Horizon resisted that discovery, both Chancery judges granted motions to compel by the respective plaintiffs, subject to confidentiality orders under which the documents would be for “attorneys’ eyes only.”  Horizon obtained leave to appeal, and the Appellate Division, in an opinion reported at 446 N.J. Super. 96 (App. Div. 2016), reversed both orders compelling discovery.  The Supreme Court granted review, and today that Court reversed the Appellate Division and reinstated the two Chancery Division rulings.

Judge Fisher invoked “the familiar abuse-of-discretion standard applicable when appellate courts review discovery orders: appellate courts are not to intervene but instead will defer to a trial judge’s discovery rulings absent an abuse of discretion or misapplication of the law.”  The Appellate Division had recognized that standard of review, as Judge Fisher noted.  But that court rejected the Chancery rulings because, in the Appellate Division’s view, some or all of plaintiffs’ claims “rest[ed] on the slenderest of reeds.”  That court found the discovery “not relevant,” and stated that even if it were relevant, plaintiffs’ need for the discovery was outweighed by Horizon’s need to protect the confidentiality of its proprietary business information.

The Supreme Court found that the Appellate Division ruling was an abuse of discretion.  Judge Fisher stated that the Appellate Division had “exceeded the and by limits imposed by the standard of appellate review both by assessing the information’s relevance against the panel’s own disapproving view of the merits and by giving no apparent weight or consideration to the protections afforded by the confidentiality orders.”  The decisions of the two Chancery judges were “soundly and logically reached and should not have been second-guessed because the Appellate Division harbored a different view of the merits.  We have never held that, when dissemination may be adequately protected by a confidentiality order, a party’s right to relevant discovery is governed by a court’s impression of that party’s likelihood of success on the related claim or defense.”

Today’s decision is a ringing reaffirmation of the proper breadth of discovery.  Judge Fisher cited prior cases holding that discovery rules are to be construed “liberally in favor of broad pretrial discovery,” and that “good cause” is required from a party who resists discovery before that requested discovery will be denied.  Even claims that requested information is “proprietary” will not necessarily meet that standard.  “The party attempting to show that secrecy outweighs the presumption of discoverability must be specific as to each document; broad allegations of harm, unsubstantiated by specific examples or articulated reasoning, are insufficient.”  At a time when federal procedure sometimes appears to be tilting away from discovery rights, Judge Fisher’s ruling, for a 5-0 Supreme Court, sets the right example for our courts.



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