Blue Cross and Blue Shield of Mo v. Nixon

• Decision Date: 30 April 2002
• Docket Number: No. WD 59849.,No. WD 59766.,WD 59766.,WD 59849.
• Citation: 81 S.W.3d 546
• Parties: BLUE CROSS AND BLUE SHIELD OF MISSOURI, A Missouri Nonprofit Corporation, Appellant-Respondent, v. Jeremiah W. (Jay) NIXON, in his Official Capacity as the Attorney General of the State of Missouri, Defendant, Jay Angoff, in his Official Capacity as the Director of the Missouri Department of Insurance, Defendant, Anthony J. Sarkis, Jr., Respondent-Appellant, and James Hacking, individually and as Representatives of a Class of Subscribers of Blue Cross and Blue Shield of Missouri and its Affiliates, Plaintiff.
• Court: Missouri Court of Appeals

81 S.W.3d 546

BLUE CROSS AND BLUE SHIELD OF MISSOURI, A Missouri Nonprofit Corporation, Appellant-Respondent, v. Jeremiah W. (Jay) NIXON, in his Official Capacity as the Attorney General of the State of Missouri, Defendant Jay Angoff, in his Official Capacity as the Director of the Missouri Department of Insurance, Defendant Anthony J. Sarkis, Jr., Respondent-Appellant, and James Hacking, individually and as Representatives of a Class of Subscribers of Blue Cross and Blue Shield of Missouri and its Affiliates, Plaintiff.

No. WD 59766.

No. WD 59849.

Missouri Court of Appeals, Western District.

April 30, 2002.

Motion for Rehearing and/or Transfer to Supreme Court Denied July 2, 2002.

Application for Transfer Denied August 27, 2002.

Richard A. Ahrens, for appellant-respondent.

Jeffrey J. Lowe, St. Louis, for respondent-appellant.

Paul C. Wilson, Richard G. Callahan, Jefferson City, for respondent.

Before HAROLD L. LOWENSTEIN, Presiding Judge, PAUL SPINDEN, Chief Judge, and JOSEPH M. ELLIS, Judge.

JOSEPH M. ELLIS, Judge.

Anthony Sarkis, individually and as representative of a class of plan subscribers, appeals from a declaratory judgment entered in the Circuit Court of Cole County declaring that Respondent/Cross-Appellant Blue Cross Blue Shield of Missouri ("BCBS") was a public benefit corporation rather than a mutual benefit corporation. BCBS cross-appeals challenging the trial court's finding that Sarkis had standing to litigate this issue.

Sarkis is and has been a subscriber to medical plans offered by BCBS and its predecessors since 1959. He was party to this action in his individual capacity and as the representative of a class that was certified by agreed order on July 1, 1999. The class was defined as all persons who are or have been subscribers to medical plans of BCBS and its affiliates on or after June 20, 1995.

BCBS is a Missouri nonprofit corporation formed under Chapter 355 with its principal place of business in St. Louis, Missouri. In 1986, two Missouri nonprofit corporations, Blue Cross Health Services, Inc. of Missouri and Missouri Medical Services, Inc., merged to form BCBS.¹ After the two companies merged, the newly formed corporation's Articles of Incorporation provided that:

The corporation shall conduct its affairs in accordance with the General Not for Profit Corporation Law of the State of Missouri without profit to any member. In the event of dissolution of the corporation, its assets shall be applied and distributed pursuant to the provisions of the General Not For Profit Corporation Law or under direction of a court having jurisdiction thereof.

In 1994, BCBS formed a for-profit subsidiary named RightCHOICE Managed Care, Inc. BCBS transferred its managed care assets and liabilities to this subsidiary. Approximately twenty percent of the shares in RightCHOICE were issued to the public for cash.

Following the reorganization of 1994, a dispute arose between the State of Missouri and BCBS over additional moneys claimed to be owed to the State as a result of that reorganization. The Attorney General and the Department of Insurance contended that BCBS had abandoned its nonprofit purposes and abused its nonprofit powers by transferring valuable assets to a for-profit, publicly traded subsidiary.

In April 1995, BCBS amended its Articles of Incorporation and eliminated its Corporate Assembly and all members, including all voting rights. Under these amendments, the BCBS Board of Directors became self-perpetuating.

On June 20, 1995, BCBS filed amendments to its Articles of Incorporation.² In relevant part, those articles stated:

The Corporation shall operate as a mutual benefit corporation.

In the event of the dissolution of the Corporation, the assets of the Corporation remaining after all creditors have been paid and all other claims and obligations of the Corporation have been satisfied or provided for shall be distributed to the Subscribers, in proportion to the premium dollars paid by each Subscriber (or by an employer or other person for the benefit of a subscriber) the Corporation or any Controlled Subsidiary ... during the twelve calendar months immediately preceding the month in which the effective date of the dissolution of the Corporation occurs; provided, however, that in no event shall any such net assets be distributed to (i) a "public benefit corporation," (ii) the United States, (iii) a state or (iv) a person which is recognized as exempt under Section 501(c)(3) of the Internal Revenue Code. "Subscribers" means those persons who shall subscribe to the Corporation's or a Controlled Subsidiary's hospital, medical and other health care, health care services and/or health care benefits in accordance with the provisions of contracts made with or issued by the persons whom the Corporation holds itself out as benefiting [sic] and serving.

Subsequent to BCBS's reorganization, multiple civil actions were filed. The first case filed was BCBSMo. v. Angoff et al. (No. CV196-619CC), which BCBS filed against the Director of the Department of Insurance, the Department of Insurance, and the Attorney General. In that case, BCBS sought a determination of its obligations to the state resulting from the 1994 reorganization. The Department of Insurance filed a counter-claim alleging that BCBS had violated and continued to violate various statutory and common law duties. On December 30, 1996, the trial court in the first case entered summary judgment in favor of the Attorney General and the Department of Insurance. The court found that BCBS was operating in violation of its statutory purposes as a nonprofit health services corporation as a result of the 1994 reorganization.

On November 3, 1997, BCBS filed the present declaratory judgment action against the Attorney General seeking a declaration that it was a mutual benefit corporation rather than a public benefit corporation as defined by § 355.066 and 355.881. The Attorney General answered and filed a counterclaim requesting a declaration that BCBS was a public benefit corporation. On December 3, 1997, the Director of Insurance filed a motion to join or intervene in the case. On June 11, 1998, Sarkis filed a Motion to Intervene as a Party Plaintiff as a Matter of Right Pursuant to Rule 52.12(a).

Prior to the court ruling on those motions, on August 17, 1998, BCBS filed an amended petition including the Department of Insurance and Sarkis as parties. In the amended petition, BCBS set forth that the Attorney General and the Department of Insurance sought a declaration that it was a public benefit corporation and that Sarkis sought a declaration that it was a mutual benefit corporation. BCBS contended that Sarkis and the class lacked standing to litigate the issue and requested a declaration of its status as a public or mutual benefit corporation without taking a position on the issue. On September 16, 1998, Sarkis filed an answer to the amended petition and a counterclaim for declaratory and injunctive relief.

On August 4, 1998, this court affirmed the judgment in the initial case related to the 1994 reorganization. Blue Cross and Blue Shield of Missouri v. Angoff, No. 53798, 1998 WL 435697 (Mo.App.W.D. Aug. 4, 1998). While that case was pending on transfer to the Missouri Supreme Court, on September 20, 1998, BCBS accepted a settlement offer from the Attorney General and the Department of Insurance to settle all of the claims between those parties in both cases. Under the settlement agreement, BCBS was to convert to a for-profit corporation to be owned by The Missouri Foundation for Health. The Missouri Foundation for Health was to be a public benefit corporation created to identify and address the unmet health care needs of uninsured and underinsured individuals in the former BCBS service area. A new RightCHOICE Managed Care, Inc. was to be formed under Delaware law, and BCBS was to merge with the new RightCHOICE. Eighty-one percent of the new RightCHOICE stock was to be owned by The Missouri Foundation for Health which would divest itself of these shares over time and apply the proceeds to public health purposes.

A third case was filed by Sarkis, individually and on behalf of a class of BCBS subscribers in the Circuit Court of the City of St. Louis against BCBS, RightCHOICE, and several BCBS officers and directors. Sarkis claimed that the 1994 reorganization was unlawful and sought damages. The trial court in that case dismissed the petition with prejudice finding that the plaintiffs lacked standing to sue. On February 1, 2000, the Eastern District of this court affirmed that dismissal in an unpublished opinion. Sarkis v. Heimburger, 24 S.W.3d 738 (Mo.App. E.D. 2000).

On June 17, 1999, the parties filed an extensive stipulation of facts and agreed to the admissibility of numerous documents in the case at bar. On July 6, 1999, the Attorney General filed a motion for summary judgment asking the court to declare that BCBS was a public benefit corporation. On August 5, 1999, BCBS filed a motion for summary judgment against Sarkis and the class based on a lack of standing to participate in the declaratory judgment action.

On January 17, 2000, BCBS amended Article VII of its Articles of Incorporation to state:

In the event of the dissolution of the Corporation, the assets of the Corporation remaining after all creditors have been paid and all other claims and obligations of the Corporation have been satisfied or provided for shall be distributed to any one or more organizations designated by the Board of Directors of the Corporation, each of which shall (i) be either a nonprofit public benefit corporation or recognized as exempt under Section 501(c)(3) or Section 501(c)(4) of the Internal Revenue Code or any successor sections, and (ii) have as its principal purpose the promotion of public health in the State of Missouri.

On March 6, 2000, BCBS amended Article III of its Articles of Incorporation to state, "This corporation...