State ex rel. Hatch v. Allina Health System, A03-1274.
| Decision Date | 18 May 2004 |
| Docket Number | No. A03-1274.,A03-1274. |
| Citation | 679 N.W.2d 400 |
| Parties | STATE of Minnesota by its Attorney General, Mike HATCH, Respondent, v. ALLINA HEALTH SYSTEM, Defendant, Board of Medica Health Plans, Appellant. |
| Court | Minnesota Court of Appeals |
Mike Hatch, Attorney General, Lori R. Swanson, Solicitor General, St. Paul, MN, for respondent.
Marianne D. Short, Dorsey & Whitney LLP, Minneapolis, MN, for appellant.
Kay Nord Hunt, Diane M. Odeen, Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, MN, for amicus curiae Minnesota Council of Nonprofits.
Considered and decided by TOUSSAINT, Chief Judge; ANDERSON, Judge; and HUSPENI, Judge.1
The state brought this action against Allina Health System seeking solely to compel disclosure of certain documents. The state and Medica, formerly a subsidiary of Allina, agreed to an order appointing eight identified individuals as administrators of Medica. After nearly two years under this arrangement, Medica moved to dismiss the original action arguing, inter alia, that the goals of the litigation had been achieved. The district court denied this motion and granted the state affirmative relief, including authorizing the Attorney General to "rehabilitate" Medica, declaring the elections of some board members void, ordering the administrators to remain in their positions, and authorizing the state to appoint additional administrators. Because Medica was not given adequate notice of the requested relief and thus did not have an opportunity to be heard regarding the proposed relief, we reverse.
The appellant in this proceeding is the board of directors of Medica Health Plans (Medica); the respondent is the State of Minnesota. On January 18, 2000, the United States Department of Health and Human Services, Office of the Inspector General (HHS IG), issued an audit report detailing questionable administrative costs for nine health-care management organizations, including Medica, which was then a subsidiary of Allina Health System (Allina). Allina and Medica are both non-profit corporations organized under chapter 317A of the Minnesota Statutes.
The Minnesota Attorney General began an investigation of Allina, but Allina provided the Attorney General only some of the information and documents demanded. As a result, respondent filed a complaint in district court alleging that Allina had failed to produce all of the demanded documents and requesting an order: (1) declaring Allina in violation of Minn.Stat. § 309.54 (2000) for refusing to produce the documents, (2) ordering Allina to produce the documents, (3) granting respondent attorneys' fees, investigative costs, and costs and disbursements, (4) appointing a referee to supervise the production of the information and documents, (5) ordering Allina to pay for respondent's accountants, and (6) "[g]ranting such further relief as the Court deems necessary." The complaint sought no other relief and has never been amended.
On August 2, 2001, a consent order between Allina and respondent was entered in Hennepin County District Court that provided for the separation of Allina-affiliated organizations financing health care from Allina-affiliated organizations delivering health care. The consent order required an independent board of directors and noted that the then-current board of Medica had resigned and that persons qualified to act as directors for Medica were hesitant to do so because of an on-going investigation by the U.S. Attorney's Office. Consequently, the consent order appointed eight individuals as directors and special administrators of Medica pursuant to chapter 309 of the Minnesota Statutes.
The special administrators were ordered "to adopt Restated Bylaws and Articles of Incorporation necessary to effect the reorganization," of Medica but did not otherwise identify the duties of the special administrators. The president and chief financial officer were ordered to enter into indemnification agreements with each of the newly appointed Medica directors.
On January 10, 2002, Medica and Allina entered into a plan separating the two organizations. On April 30, 2002, Medica, with the approval of the Minnesota Department of Health, adopted new articles of incorporation and bylaws.
In June 2002, elections to Medica's board were held and four of the special administrators were elected as member-directors. The remaining special administrators were elected as non-member directors, along with others who had never served as special administrators. The chair and vice chair of the newly appointed board were both special administrators.
On February 19, 2003, respondent moved to dismiss Allina as a party to this litigation and to dismiss three of Medica's special administrators but specifically did not terminate the proceedings as related to Medica. The district court granted this motion before receiving a response from Medica, but vacated the order on February 27, 2003, because Medica objected to it. The parties then engaged in fruitless negotiations.
On April 25, 2003, Medica moved to dismiss for lack of subject matter jurisdiction or for summary judgment. In response, respondent argued, inter alia, that the appointments of the special administrators continued until Medica had been successfully rehabilitated; respondent also argued that the appointments were not to terminate until the Attorney General petitioned the district court for dismissal. Respondent attacked the performance of the special administrators, essentially accusing the special administrators of failing to perform their duties and of unethical behavior, and criticized Medica's business practices. Respondent also argued "that factual disputes would prevent" a grant of summary judgment. Respondent made no motions.
In an order filed August 14, 2003, the district court denied Medica's motion. The district court also (1) ruled that the Attorney General "possesses statutory supervisory authority over Medica's `rehabilitation' until this matter is dismissed;" (2) declared the board elections null and void, ordered the special administrators to remain in that capacity and as non-elected board members, and ruled the special administrators could only seek election to the board of directors once they are dismissed as special administrators; (3) authorized the Attorney General to appoint additional special administrators to serve as non-elected board members so that the special administrators controlled the Medica board; and (4) ordered the special administrators to meet with representatives of the Attorney General and to issue regular reports to the court.
In the memorandum accompanying its order, the district court concluded that the present action is the same action originally commenced against Allina and that, because the district court initially had jurisdiction over Medica, it retains jurisdiction over Medica, despite the separation from Allina. Regarding the appointment of the special administrators, the district court noted, "There is significant dispute between the parties as to what the [s]pecial [a]dministrators were charged with accomplishing...." The district court concluded that, because there was no language stating when the appointments terminated, the unambiguous language of the order meant that the appointments did not terminate.
The district court found that, even if the language of the consent order was ambiguous, it was "simply not plausible" to believe that the Attorney General would enter into a consent order for only a limited purpose and that the purpose of the consent order, instead, "was to address the systemic dysfunction at Medica." The district court relied on affidavits from the Attorney General and found, "It is not credible" that most of the special administrators "had an entirely different understanding of the original court order" from the Attorney General. The district court cited its broad equitable powers under Minn.Stat. § 309.57, subd. 1, Minn.Stat. § 317A.751, subd. 5(5), and Minn.Stat. § 8.31, subd. 3, as authority to appoint special administrators without a finding of illegality. The district court concluded that the directors' duty of loyalty to Medica did not render the original consent order invalid because the special administrators were subject to the Code of Judicial Conduct, characterizing them as court personnel similar to receivers. The district court also stated that the lack of an explicit retention of jurisdiction in the consent order did not deprive the district court of jurisdiction.
Regarding the Attorney General, the district court concluded that the Attorney General has the power "to seek oversight of Medica's rehabilitation via court appointment of the [s]pecial [a]dministrators." Regarding the elections, despite contradictory evidence, the district court stated, "The court believes, quite frankly, that the A[ttorney] G[eneral] should have [known], but did not know of or did not realize the import of, the election of the [s]pecial [a]dministrators to Medica's board," and therefore the Attorney General's challenge to the elections was not barred by laches. This appeal followed. A special term panel of this court concluded that the district court's decision is appealable but deferred resolution of appellant's standing to challenge the district court's order and whether to extend review to non-jurisdictional issues to this panel.
I. Does the district court have subject matter jurisdiction over this case?
IV. Did appellant have notice of respondent's claims?
V. Did the district court improperly resolve disputed facts?
The motion before the district court challenged the district court's subject matter jurisdiction over this case. Respondent instituted this suit to compel Allina to produce documents in compliance with chapter 309 of the Minnesota Statutes. Subject matter...
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