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In re Garden City Employees' Retirement System

United States District Court, Third Circuit

January 24, 2014



JUAN R. SNCHE, District Judge.

Movant Universal Health Services, Inc. (UHS) asks this Court to quash or modify a document subpoena issued by counsel for Central States, Southeast and Southwest Areas Pension Fund (Central States), the lead plaintiff in Garden City Employees' Retirement System v. Psychiatric Solutions, Inc. , Civil No. 09-882 (M.D. Tenn. filed Sept. 21, 2009) (the Underlying Action), a securities class action currently pending in federal court in the Middle District of Tennessee. UHS, which is not a party to the Underlying Action, argues the subpoena is overbroad and unduly burdensome and seeks documents that are irrelevant or can be obtained from Psychiatric Solutions, Inc. (PSI), the corporate defendant in the Underlying Action. Central States urges the Court to transfer this discovery dispute to the court in which the securities class action is pending or, alternatively, to order UHS to fully comply with the subpoena within 30 days. For the reasons set forth below, the Court will grant UHS's motion and quash the subpoena.


PSI operates for-profit psychiatric hospitals and residential treatment facilities, primarily for the treatment of children, adolescents, and teenagers. See Mot. to Quash, Ex. 3 ¶ 2. Filed on September 21, 2009, the Underlying Action is a class action brought on behalf of persons who purchased PSI securities between February 21, 2008, and February 25, 2009 (the class period), alleging securities fraud by PSI and three of its officers. Plaintiffs allege PSI "ran its business in a manner which operated as a fraud or deceit upon investors and other members of the public, " and made false and misleading statements to investors about a number of topics, including, inter alia, the quality of patient care provided by PSI. Id. ¶ 3. These allegedly false and misleading statements include a statement in PSI's 2007 annual report on Form 10-K, issued on February 28, 2008, representing that the company's "primary focus on the provision of inpatient behavioral health care services allows us to operate more efficiently and provide higher quality care than our competitors." Id. ¶ 106. Plaintiffs assert that as a result of PSI's fraud, the company's stock traded at inflated prices during the class period. Having purchased stock at the inflated prices, plaintiffs suffered damages when the stock price dropped following the company's February 2009 announcement of a sudden decline in earnings for fiscal year 2008 due to rising malpractice claims and an investigation into conditions at several of its facilities.

In May 2010, more than two years after PSI's 2007 10-K was filed, and more than a year after the end of the class period, UHS, PSI's closest competitor during the class period, announced it would acquire PSI.[1] The acquisition was completed in November 2010. Approximately seven months later, in June 2011, a healthcare facilities analyst interviewed Steve Filton, UHS's Chief Financial Officer, at the Wells Fargo Securities Healthcare Conference. In response to a request from the analyst for an update on the integration of PSI's facilities and what UHS had learned about the PSI facilities since acquiring them, Filton made the following statements:

You know, I think we had the sense that PSI was a company focused primarily on growth. They pursued a very aggressive growth strategy in their short eightnine-year history, did so very effectively. But I think as a consequence of that, perhaps they were a little bit less focused, organized, disciplined than we were accustomed to seeing the UHS hospitals managed and operated in a whole host of areas, quality, risk management, operational efficiency, capital spend, et cetera.
Certainly, you know, we're-improvements that can be made immediately, we're making, and again I think we've tried to prioritize, so that the changes and the improvements that affect patient safety and risk factors, we're focusing on those first, and holding, to some degree, in abeyance those that are more operational efficiencies and margin improvement, et cetera.

Mot. to Quash Ex. 5, at 1-2.

On July 30, 2013, Central States served the subpoena at issue on UHS, requesting production of "[a]ll documents that support, substantiate, formed the basis of, or relate to, [the above referenced statements by Filton], " including all documents relating to (a) "PSI's lack of focus[]' organiz[ation]' and discipline[]'"; (b) "PSI's quality, risk management, operational efficiency, capital spend'"; (c) "improvements made by UHS to PSI Facilities that affected patient quality, patient safety and risk factors"; and (d) "the prioritization of improvements to PSI Facilities." Mot. to Quash Ex. 1, at 6-7. On August 16, 2013, UHS objected to the subpoena on numerous grounds. Notwithstanding its objections (and without waiving them), UHS investigated the issues raised by the subpoena and advised Central States, by letter of October 1, 2013, that Mr. Filton's statements at the June 2011 Healthcare Conference were unscripted and there were thus "no particular documents [that] formed the basis of' those statements." Mot. to Quash Ex. 6. Insofar as the subpoena called for documents that "support, " "substantiate, " or "relate to" Filton's statements, UHS took the position such requests were overbroad and fell outside the scope of permissible discovery. UHS thereafter filed the instant motion, requesting this Court to quash the subpoena in its entirety or, alternatively, to deem its existing response to the subpoena adequate.


As an initial matter, Central States urges the Court to transfer the motion to quash to the United States District Court for the Middle District of Tennessee, where the Underlying Action is pending. Although the version of Federal Rule of Civil Procedure 45 in effect when UHS filed the instant motion to quash did not explicitly authorize the transfer of a subpoena-related motion, a number of courts had held such a transfer was permissible in limited circumstances, particularly where the nonparty consented to the transfer. See, e.g. , Frank Brunckhorst Co. v. Ihm , No. 12-217, 2012 WL 4963757, at *5 (E.D. Pa. Oct. 18, 2012) (collecting cases). But see, e.g. , In re Sealed Case , 141 F.3d 337, 343 (D.C. Cir. 1998) (vacating on mandamus review the transfer of subpoena-related motions to the court where the underlying action was pending and holding the Rules of Civil Procedure do not authorize a district court to transfer such motions).

After the instant motion to quash was filed, the 2013 amendments to Rule 45 took effect, adding new Rule 45(f), which expressly authorizes the transfer of a subpoena-related motion, providing "[w]hen the court where compliance is required did not issue the subpoena, it may transfer a motion under this rule to the issuing court if the person subject to the subpoena consents or if the court finds exceptional circumstances."[2] Fed.R.Civ.P. 45(f). In its order adopting the 2013 amendments to Rule 45, the Supreme Court specified the amendments would govern in all proceedings commenced after December 1, 2013, and, "insofar as just and practicable, all proceedings then pending." Central States' Surreply Attachment, ECF No. 20-1, at 4. While the parties continue to disagree as to whether transfer of UHS's motion to quash is warranted, they have not identified any reason why evaluating Central States' request to transfer under Rule 45(f) would be unjust or impracticable; hence, the Court will evaluate the request under the new Rule.

As noted, where, as here, a person subject to a subpoena opposes transfer of a subpoena-related motion, a court may transfer the motion only in exceptional circumstances. Fed.R.Civ.P. 45(f). "[T]he proponent of transfer bears the burden of showing that such circumstances are present." Fed.R.Civ.P. 45(f), advisory committee notes (2013 amendments). The Advisory Committee ...

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