BLUE CROSS & BLUE SHIELD v. Deal

• Decision Date: 29 June 2000
• Docket Number: No. A00A0872-A00A0875.
• Citation: 244 Ga. App. 700,536 S.E.2d 590
• Court: Georgia Court of Appeals
• Parties: BLUE CROSS & BLUE SHIELD OF GEORGIA, INC. et al. v. DEAL et al. Oxendine v. Deal et al. Blue Cross & Blue Shield of Georgia, Inc. et al. v. Tiller et al. Oxendine v. Tiller et al.

536 S.E.2d 590

244 Ga. App. 700

BLUE CROSS & BLUE SHIELD OF GEORGIA, INC. et al. v. DEAL et al.

Oxendine v. Deal et al.

Blue Cross & Blue Shield of Georgia, Inc. et al. v. Tiller et al.

Oxendine v. Tiller et al.

Nos. A00A0872-A00A0875.

Court of Appeals of Georgia.

June 29, 2000.

Hull, Towill, Norman, Barrett & Salley, David E. Hudson, Augusta, Long, Aldridge & Norman, Bruce P. Brown, Lawrence A. Slovensky, James A. Washburn, Carr, Tabb, & Pope, W. Pitts Carr, David H. Pope, Atlanta, for Blue Cross & Blue Shield of Georgia, Inc. et al.

Thurbert E. Baker, Attorney General, Robert S. Bomar, Deputy Attorney General, Harold D. Melton, Senior Assistant Attorney General, William C. Calhoun Sidney R. Barrett, Jr., Assistant Attorneys General, for Oxendine.

Sims, Moss, Kline & Davis, Jerry L. Sims, Brownstein & Nguyen, Jay D. Brownstein, Atlanta, Paine Little, Travers W. Paine III, Kevin S. Little, Bell & James, John C. Bell, Jr., Pamela S. James, James L. Bentley III, Augusta, for Deal and Tiller et al.

BLACKBURN, Presiding Judge.

In this action concerning distribution of shares in a newly formed for-profit corporation, the Commissioner of Insurance of the State of Georgia, Blue Cross & Blue Shield of Georgia, Inc., and Cerulean Companies, Inc. appeal the trial court's reversal of an order by the Commissioner finding that Harrell Tiller and a class of other plaintiffs similarly situated¹ were not entitled to a declaratory judgment that they owned shares of stock in Cerulean, the new corporation. As the Superior Court of Richmond County failed to follow the guidance of our Supreme Court in this matter and lacked subject matter jurisdiction, we vacate its order.

This is the second appearance of this case in the appellate courts of Georgia. In its first appearance, our Supreme Court rejected the trial court's analysis and reversed an almost identical ruling by the same judge in the Superior Court of Richmond County based on the parties' failure to exhaust administrative remedies. The following facts track those set forth in the prior Supreme Court opinion. See Cerulean Cos. v. Tiller, 271 Ga. 65, 516 S.E.2d 522 (1999).

In 1995, Blue Cross initiated the process to convert itself from nonprofit to for-profit status pursuant to OCGA § 33-20-34. As part of this statutory conversion, Blue Cross created Cerulean Companies to be its for-profit alter ego and to act as a holding company for its assets. On October 30, 1995, Blue Cross sought approval of its Plan of Conversion with the Commissioner as required by the Georgia Code, and, following extensive review and a hearing, the Commissioner issued an order allowing the conversion on December 27, 1995. At the moment that the Commissioner approved the Plan of Conversion, " it became a contract between the [C]ommissioner and Blue Cross and was subject to enforcement between those two parties only." Tiller, supra at 68(2), 516 S.E.2d 522. As such, any review sought by the eligible members regarding the Plan following this point in time would be limited to the propriety of the stock distribution according to the Commissioner's understanding of the Plan. No further actions regarding the structure or makeup of the Plan itself would be proper.

As part of the conversion, Blue Cross had to develop a Plan to establish owners or shareholders of its new for-profit incarnation, Cerulean, the terms and implementation of which were approved by the Commissioner for the protection of potential shareholders, following a hearing on these issues. Blue Cross sent a prospectus and election form to its approximately 144,000 "Eligible Subscribers" and offered each of them five shares in Cerulean at no cost. In order to minimize potential tax liability to its subscribers as established by expert testimony at the hearing, Blue Cross gave them the option of accepting or rejecting the shares. To accept share distribution, a subscriber was required to check a box on an election form and return it in a prepaid envelope by August 12, 1996. To reject the offer, subscribers could either return the election form indicating their rejection or simply do nothing.

In order to facilitate the orderly progression of the election process and to ensure that all eligible subscribers were aware of the opportunity, Blue Cross sent out additional brochures after mailing the election form and made follow-up phone calls to its eligible subscribers. In addition, the Commissioner issued a news release concerning the conversion, asked employers of groups of subscribers to post notices about the conversion, and established a conversion information hotline. Approximately 74,000 of Blue Cross's eligible subscribers accepted the stock offering, 12,000 expressly declined, and 58,000 failed to respond. Within 30 days of the approval date of the Plan of Conversion, any eligible subscriber could have appealed the Commissioner's order of approval and implementation. See OCGA § 33-2-6. In addition, any subscriber who disagreed with the method of stock distribution employed could have requested a hearing before the Commissioner during the distribution. OCGA § 33-2-17. No subscriber, including Tiller, Deal, or Lokey, chose to avail himself of any of these remedies. Instead, they remained silent during the entire distribution process, through its culmination.

Approximately two years later, Cerulean announced details of its impending merger with WellPoint Health Networks, Inc. Pursuant to this merger, the 74,000 holders of Cerulean stock would receive either cash or WellPoint stock worth approximately $4,000. After learning about the merger, Tiller, Deal, Lokey, and other Blue Cross subscribers, all of whom had either specifically rejected the stock offering or failed to act thereon, brought a declaratory judgment action in the Superior Court of Richmond County to establish themselves as holders of Cerulean stock with a right to proceeds from the merger, notwithstanding the fact that OCGA § 33-2-27 requires that all such actions brought against the Commissioner be filed in the Superior Court of Fulton County. On December 17, 1998, the trial court, using principles of insurance contract construction to review the Plan of Conversion, ruled that Blue Cross was required to distribute Cerulean stock to each eligible subscriber and was not authorized to give eligible subscribers the option of declining or accepting the stock.

Cerulean then appealed directly to our Supreme Court. In its opinion, the Supreme Court summarily rejected the trial court's analysis on the merits of the controversy in its entirety, stating that the trial court: improperly construed the Plan of Conversion as it would an insurance contract for numerous reasons; failed to defer to the Commissioner's interpretation of the Plan of Conversion, which is controlling; failed to appreciate the Commissioner's autonomy regarding the conversion of corporations; failed to thoroughly consider the tax implications of the stock distribution; and inappropriately entertained arguments regarding the construction of the Plan of Conversion which directly contradicted the construction of the Commissioner. Tiller, supra at 68(2), 516 S.E.2d 522. These rulings by the Supreme Court will be more fully discussed below. The Supreme Court ultimately reversed the trial court's ruling providing inter alia:

The issue before this Court is whether Harrell Tiller and the other plaintiffs below were required to exhaust administrative remedies before seeking equitable relief in superior court. Because the plaintiffs are seeking an interpretation of the Plan of Conversion and because the Commissioner of Insurance reviewed the Plan, approved it, and participated in the conversion process after approval, we hold that the parties must follow the administrative review process before seeking judicial review. Therefore, the trial court erred in deciding the merits and we reverse.

Id. at 65, 516 S.E.2d 522.

Thereafter, Tiller chose to pursue one of the administrative remedies discussed by our Supreme Court and filed a petition with the Commissioner on May 17, 1999, requesting a declaratory ruling that he and the other petitioners were rightful holders of Cerulean stock. On June 22, 1999, the Commissioner denied Tiller's petition, finding that the offering of Cerulean shares was completed in 1996, the plaintiffs should have raised this issue during the offering period, and, because the offering had already been completed, the plaintiffs' claims were moot. The Commissioner further opined that any forced offering to subscribers who initially rejected the shares would be inequitable two years after completion of the offering. The Plan contract between the Commissioner and Blue Cross had been completely executed at this point in time.

Unhappy with the Commissioner's decision, Tiller again appealed the Commissioner's decision to the Superior Court of Richmond County, ignoring the requirement of OCGA § 33-2-27 that such suits be filed in Fulton County. On September 21, 1999, the same trial court which had previously considered Tiller's case issued an order reversing the decision of the Commissioner. Again, using the same principles of contract construction analysis previously rejected by the Supreme Court in this matter with the same result, the trial court interpreted the Plan of Conversion to require Cerulean to issue stock to all eligible subscribers, whether or not they had indicated that they wanted the stock and irrespective of any adverse tax consequences. It is this decision which is now subject to our review.

1. A review of the record shows that the trial court's order fails to respect either the deferential standard of review for the Commissioner's decision or the ruling of our Supreme Court in its prior review of this case.

As an initial matter, the decision by the Commissioner may be reversed or modified, in relevant part, only:

if substantial rights of [Tiller,

...