Opinion
No. WD53798 (Consolidated with WD53799, WD53800 and WD53851)
Opinion filed: August 4, 1998
APPEAL FROM THE CIRCUIT COURT OF COLE COUNTY, THE HONORABLE THOMAS J. BROWN, III, JUDGE.
Don Downing, STINSON, MAG FIZZELL, P.C., St. Louis, David E. Everson, STINSON, MAG FIZZELL, P.C., Kansas City, Attorneys for Blue Cross and Blue Shield of Missouri, Appellant-Respondent.
Patrick H. Cantilo, P.C., Bryan R. Newcombe, Pierre J. Riou, CANTILO, MAISEL HUBBARD, L.L.P., Austin, Texas, Richard G. Callahan, Jefferson City, Mark W. Stahlhuth, Dori J. Drummond, Jefferson City, Attorneys for Respondent-Appellant Department of Insurance, Jeremiah W. (Jay) Nixon, Missouri Attorney General, Karen King Mitchell, Appellate Chief Counsel, J. Robert Sears, Assistant Attorney General, Jefferson City, Attorneys for Respondent, Attorney General of Missouri, for respondent.
Before Ulrich, C.J.; Lowenstein and Howard, JJ.
Blue Cross and Blue Shield of Missouri (Blue Cross) appeals the trial court's orders granting partial summary judgment in favor of Defendants, the Missouri Department of Insurance (Department), its director, Jay Angoff (Director), and the Attorney General of the State of Missouri, Jeremiah W. Nixon (Attorney General). Blue Cross sought a declaratory judgment against Defendants to determine its liabilities and obligations under Missouri law relating to a 1994 reorganization of the company. It also requested temporary, preliminary, and permanent injunctive relief against Defendants to enjoin them from taking any actions against it relating to the reorganization. Defendants filed counterclaims against Blue Cross alleging, inter alia, that it had continued to exceed or abuse the authority conferred upon it by law as a nonprofit health services corporation by virtue of the 1994 restructuring. The Director and the Department sought appropriate relief under the Health Services Corporation Law, sections 354.010 to 354.380, while the Attorney General sought relief under the Missouri Nonprofit Corporation Act, Chapter 355. All parties moved for summary judgment on their claims.
All statutory references are to RSMo 1994 unless otherwise indicated.
The trial court denied Blue Cross's motion for summary judgment and granted Defendants' motions for partial summary judgment. It found that Blue Cross had continued to exceed or abuse the authority conferred upon it by law in violation of sections 354.010 to 354.380 and was subject to judicial proceedings pursuant to section 355.726.1.
On appeal, Blue Cross claims that the trial court erred in granting partial summary judgment in favor of Defendants on their counterclaims for several reasons. It asserts that (1) the trial court lacked jurisdiction over the Attorney General's counterclaim, (2) Defendants were estopped from challenging the 1994 reorganization based on the Director's 1994 approval of the reorganization and offering, (3) section 355.726 was inapplicable in this case, and (4) Defendants failed to establish that Blue Cross had continued to exceed or abuse the authority conferred upon it by law. Blue Cross also claims that the trial court erred in denying its motion to supplement the summary judgment record.
The Director filed a cross-appeal asserting two points of error. Blue Cross's appeal is dispositive, therefore, it is unnecessary to address the cross-appeal.
The judgment of the trial court is affirmed.
FACTUAL BACKGROUND
Blue Cross, a nonprofit corporation, was originally incorporated in 1936 as Group Hospital Services, Inc. of St. Louis, Missouri. It was established under the Revised Statutes of Missouri, Chapter 32, Article 10, entitled Benevolent, Religious, Scientific, Fraternal-Beneficial, Educational and Miscellaneous Associations. Chapter 32, Article 10 allowed the incorporation of:
Any association formed for benevolent purposes, including any purely charitable society, hospital, asylum, house of refuge, reformatory and eleemosynary institution, fraternal-beneficial associations, or any association whose object is to promote temperance or other virtue conducive to the well-being of the community, and, generally, any association formed to provide for some good in the order of benevolence, that is useful to the public, may become a body corporate and politic under this article.
Ch. 32, Art. 10, § 4999, RSMo 1929. The company later changed its name to Blue Cross Health Services, Inc. of Missouri and then merged with Missouri Medical Service in 1986 to form Blue Cross and Blue Shield of Missouri. In its articles of incorporation filed at the time of the merger, Blue Cross specified the following corporate purposes consistent with the corporate purposes of a Chapter 354 health services corporation:
a) to establish, operate and maintain in the State of Missouri, and elsewhere, voluntary not for profit hospital, medical, and other health care and services plans for provision of quality health care, services, drugs, medicines, equipment and supplies, or reimbursement therefor, at appropriate cost to persons who become members or beneficiaries;
b) to act as agent or intermediary for other health services corporations, for any governmental body or agency, or for other corporations, associations, partnerships or individuals in the field of health care and services, and to engage in research, education or other activity in furtherance thereof;
c) to serve the interests of its members and of the public by advancing the availability of quality health care on a voluntary, nonprofit basis, by promoting and safeguarding the public health by collection of information, statistics and data on health care matters and by participation in such benevolent, educational and related activities as are intended to benefit the public health;
d) to engage in any lawful activity in the State of Missouri and elsewhere in furtherance of the foregoing purposes and for any other purpose for which a not for profit corporation may now or hereafter be organized under the laws of Missouri, and to have and to exercise all powers now or hereafter permitted to such corporations.
Additionally, the articles provided that the corporation shall conduct its affairs in accordance with the Missouri Nonprofit Corporation Act and that in the event of a dissolution, its assets should be distributed pursuant to the provisions of the Act.
Historically, Blue Cross has offered only traditional indemnity insurance products. In 1987, Blue Cross, like other insurers, began to develop its managed care business and reduce its traditional indemnity insurance business in an effort to control increasing health care costs and to satisfy consumer demand for lower cost alternatives. Competition in the managed care business became intense in the 1990s and by the mid-1990s, Blue Cross found it necessary to raise long-term capital to maintain and improve its ability to provide quality health care services. Because of its status as a nonprofit health services corporation, however, it was prohibited by law from offering equity securities to the public. As a result, Blue Cross began to develop a plan in late 1993 and early 1994 to reorganize and issue to the public shares of stock of a newly-formed for-profit subsidiary.
Blue Cross began a series of meetings with the Director of the Missouri Department of Insurance in February 1994 to discuss the proposed reorganization. It provided the Director with an executive summary briefly describing the proposed transactions and analyzing the required regulatory filings and approvals. Blue Cross also sent a letter to the Director on March 22, 1994, to follow up on issues and questions raised at previous meetings and to explain the reasons for and the structure of the reorganization and offering.
Finally, on April 6, 1994, Blue Cross filed a Form D — Prior Notice of a Transaction with the Director describing the proposed reorganization and offering and seeking a formal approval. The proposed reorganization and offering described in Form D included a plan to incorporate a for-profit subsidiary corporation (later named RightCHOICE Managed Care, Inc.) and to issue shares of its stock in the public equity market. RightCHOICE would have two classes of common stock — Class A with one vote per share and Class B with ten votes per share. During the reorganization, the newly formed RightCHOICE would become a wholly-owned subsidiary of Blue Cross with Blue Cross acquiring all of the Class B common stock. Additionally, Blue Cross would contribute all of the assets and liabilities of its managed care business and certain excess investment assets to its wholly-owned subsidiary, Healthy Alliance Life Insurance Company (HALIC). Blue Cross then would transfer all of the issued and outstanding capital stock of HALIC and three other wholly-owned subsidiaries to RightCHOICE in exchange for Class B common stock. Finally, Blue Cross and its subsidiaries would enter into various agreements including, but not limited to, a reorganization agreement in which Blue Cross would contribute to HALIC its managed care business and certain excess investment assets in exchange for shares of RightCHOICE Class B common stock, a reinsurance agreement in which HALIC would reinsure all of Blue Cross's managed care subscriber agreements, and an administrative services agreement in which RightCHOICE would provide Blue Cross with various accounting, financial, and public relations services. RightCHOICE would also enter into an agreement with Blue Cross and Blue Shield Association to obtain a license to use the Blue Cross and Blue Shield names and service marks. Immediately following the reorganization, RightCHOICE would issue the Class A common stock in a public offering generating estimated proceeds of between $50 and $100 million. Blue Cross would retain more than an 80% ownership interest in and approximately 95% voting control over RightCHOICE after the public offering.
Form D provided that after the reorganization and the offering, Blue Cross's managed care business would be conducted by RightCHOICE and its subsidiaries (including HALIC). Blue Cross would retain its traditional indemnity insurance business and continue to operate as a nonprofit corporation:
After the Reorganization and Offering, [Blue Cross] will continue to operate as a health services corporation under RSMo Chapter 354, offering traditional fee-for-service indemnity insurance, administering the [Blue Cross and Blue Shield Association] National Accounts Program as a Participating Plan and the Federal Employees non-HMO Program, as well as conducting its various not-for-profit activities (including funding for the Caring Program for Children) and offering its unique BasicBlue means-tested, low income health insurance product.
On April 14, 1994, the Director issued a written order approving the reorganization plan proposed by Blue Cross. Thereafter, RightCHOICE was formed, and the reorganization and reinsurance agreements were executed. As part of the reorganization, Blue Cross conveyed, and HALIC reinsured, all of Blue Cross's subscriber agreements under the following product lines: preferred provider organizations, managed indemnity, prescription drug, and dental. Additionally, the existing medicare supplemental insurance (MediGap) business, which had generated 1993 premium revenues of approximately $103 million and had constituted 76% of Blue Cross's total 1993 underwriting gain was reinsured by HALIC. Immediately following the reorganization, RightCHOICE completed an initial public offering of stock in which it issued 3,737,500 shares of Class A common stock and received approximately $38 million in net proceeds.
The parties disagreed regarding whether Blue Cross disclosed that the existing MediGap business would be transferred to RightCHOICE. A copy of the reorganization agreement, which was included as Exhibit C to Form D, provided that the existing MediGap business would be retained by Blue Cross. The preliminary prospectus of RightCHOICE, included in Form D as Exhibit U, however, revealed that the medicare products would be managed by RightCHOICE.
In the summer of 1995, the Department began to investigate Blue Cross's operations. It had learned of the transfer of the entire Blue Cross MediGap business to HALIC, and became concerned that Blue Cross had converted from a nonprofit to a for-profit corporation. Immediately prior to the reorganization, Blue Cross was the largest provider of managed health care benefits in Missouri. Following the reorganization, however, RightCHOICE became the largest provider of managed health care benefits in Missouri, and by December 1994, it was serving approximately 830,000 members. In annual statements filed with the Department, Blue Cross reported premium revenues of approximately $597 million in 1990, $667 million in 1991, $706 million in 1992, and $842 million in 1993. It reported net income gains of approximately $23.7 million in 1990, $17.8 million in 1991, $17.3 million in 1992, and $25.5 million in 1993. Net underwriting gains of approximately $12.8 million in 1990, $19.1 million in 1991, $9.3 million in 1992, and $4.8 million in 1993 were also reported. In 1995, the first full year after the transfer of business from Blue Cross to RightCHOICE, Blue Cross reported premium revenues of $82 million, one-tenth of the premium revenues reported in 1993, a net loss of $1.4 million, and a net underwriting loss of $8.9 million.
Blue Cross asserts that it changed the method by which it calculated premium revenues in August of 1994. Had it used the previous method, it claims it would have reported premium revenues of $168 million for 1995, or 20% of the 1993 premium revenues.
At the time RightCHOICE was organized, it planned to retain "all of its earnings . . . for development and expansion of its business," and Blue Cross did not plan to receive any dividends from its RightCHOICE stock "in the foreseeable future." RightCHOICE did, in fact, retain all of its 1994 and 1995 earnings for use in its business, and Blue Cross did not receive any dividends. In early 1996, RightCHOICE again anticipated that "for the foreseeable future" no dividends would be paid on its stock.
The Department also discovered that Blue Cross had amended its articles of incorporation three times since April 13, 1994. Although Blue Cross was required to disclose to the Department amendments within 20 days of their filing with the Secretary of State, Blue Cross did not reveal these amendments until July 1995 in response to a Department subpoena in an unrelated matter. The first amendment, which was filed with the Secretary of State on April 13, 1994, made several changes to the corporate purposes article. The words "voluntary not for profit" were deleted from the purpose that previously read, "to establish, operate and maintain in the State of Missouri, and elsewhere, voluntary not for profit hospital, medical, and other health care and services plans." The purpose, "to serve the interests of its members and of the public," was also deleted in the amendment. Finally, the following purpose was added:
d) to engage in a managed health care business and to provide managed health care services and/or benefits through one or more for profit subsidiaries, joint ventures, partnerships, limited liability companies or other entities controlled by or under contract with the corporation, and to which the corporation may transfer, in one or more transactions, substantially all or any part of its managed health care businesses and assets . . . in exchange for stock or other equity interests in any such entity, and/or for consideration in any form whatsoever from . . . any such entity, in order (i) to permit the corporation to provide quality health care, health care services and/or health care benefits, (ii) to maintain and improve its ability to compete with for profit and not for profit entities providing health care, health care services and/or health care benefits, (iii) to participate in the consolidation of entities engaged in providing health care, health care services and/or health care benefits, (iv) to increase operational flexibility, (v) to obtain access to the equity capital markets and otherwise to improve its ability to raise capital and enhance its financial strength and flexibility, and (vi) to better position itself to carry out its purposes as a not for profit corporation.
Blue Cross filed another amendment to its articles of incorporation on April 11, 1995. In that amendment, its membership was abolished and the Board of Trustees was made self-perpetuating. The last amendment, filed with the Secretary of State on June 20, 1995, further altered the corporate purposes article by deleting the purpose "to advance the availability of quality health care by promoting and safeguarding the public health by collection of information, statistics and data on health care matters and by participation in such benevolent, educational and related activities as are intended to benefit the public health." The amendment also eliminated the article that provided for operation and dissolution of the corporation under the Missouri Nonprofit Corporation Act and replaced it with a provision explaining that it shall operate as a mutual benefit corporation and, upon dissolution, the assets of the corporation shall be distributed to the subscribers.
Neither the trial court's order nor this opinion addresses the issue of whether Blue Cross is a mutual benefit corporation or a public benefit corporation.
During this same time, consumer interest groups also began questioning Blue Cross's operation. Senator J.B. Banks, the majority leader of the Missouri Senate, sent a letter to the Director on June 28, 1995, regarding information about Blue Cross he received from a consumer group. The letter questioned whether Blue Cross was obligated to pay a charitable settlement as a result of its 1994 reorganization.
These concerns lead to discussions and negotiations with Blue Cross representatives throughout late 1995 and early 1996. In the meantime, Blue Cross again amended its articles of incorporation in December 1995 to reinstate the previously abolished purposes of operating and maintaining voluntary, nonprofit health plans and engaging in research, education or related activities in furtherance of its purposes. In a March 22, 1996 letter to Blue Cross, the Department offered to settle the controversy surrounding the 1994 transfer of substantially all of Blue Cross's assets to RightCHOICE and the subsequent amendments to its articles of incorporation for approximately $97 million. The Department explained that as a result of the transfer and amendment to its articles of incorporation, Blue Cross was required by Missouri law to transfer the value of the assets previously transferred to RightCHOICE to an existing or yet to be formed public benefits corporation. The offer was repeated in a May 3, 1996 letter to Blue Cross, and a May 10, 1996 deadline was set. Blue Cross unilaterally broke off settlement negotiations with the Defendants and filed this action on May 13, 1996.
PROCEDURAL BACKGROUND
Blue Cross filed its amended petition for declaratory judgment and other relief against the Director, the Department, and the Attorney General on May 20, 1996. The petition sought declarations by the trial court that (1) the 1994 reorganization was authorized under the Health Services Corporation Law, sections 354.010 to 354.380, (2) the Department was not authorized to amend the Director's April 1994 approval of the reorganization, and (3) Blue Cross was not obligated, and the Director was not authorized to demand, a payment or charitable asset settlement as a result of the reorganization. The petition also requested a Temporary Restraining Order and a Preliminary and Permanent Injunction enjoining Defendants from (1) commencing a valuation of Blue Cross's assets for the purpose of demanding a charitable asset settlement, (2) demanding the payment of a charitable asset settlement, and (3) commencing any administrative proceedings regarding the reorganization. Blue Cross also alleged in its petition that the Director had made public and private statements regarding the reorganization that demonstrated bias and hostility against Blue Cross and requested a declaration that the Director and the Department were disqualified from conducting any administrative proceedings relating to the reorganization. Finally, the petition sought injunctive relief against the Director and Department based on equitable and promissory estoppel by virtue of the Director's April 1994 approval.
The Director and the Department filed their answers and counterclaims to Blue Cross's petition on June 13, 1996. They raised several affirmative defenses including fraud in the inducement and negligent misrepresentation claiming that the Director's April 1994 approval of Blue Cross's reorganization was obtained by fraudulent, or at least negligent, misrepresentations or omissions relating to the disposition of the MediGap business and the undisclosed amendments to its articles of incorporation. The counterclaims alleged that Blue Cross had violated the Health Services Corporations Law, sections 354.010 to 354.380, the Insurance Holding Company Law, sections 382.010 to 382.300, and the common law charitable trust doctrine by eliminating its public and charitable purposes and operating as a for-profit corporation. The Director and the Department requested (1) an accounting of all assets transferred from Blue Cross to its subsidiaries, (2) a permanent injunction enjoining Blue Cross from amending its articles of incorporation without prior notice to the Director, transferring or reinsuring any of its assets without prior approval of the Director, or operating as a for-profit business without fulfilling its charitable or nonprofit duties, and (3) an order directing Blue Cross to transfer its public trust assets to a new public trust.
The Attorney General filed its answer and counterclaim to Blue Cross's petition on June 20, 1996. The Attorney General's counterclaim alleged that since 1994, Blue Cross had continued to act contrary to its statutory purposes as a health services corporation and had continued to engage in a business or activity for profit. The counterclaim further asserted that Blue Cross had violated the limitation on corporate purposes applicable to a health services corporation, section 354.025, and the prohibition against operating a for-profit business as a health services corporation, section 354.030, or as a nonprofit corporation, section 355.025. The counterclaim sought relief under section 355.726.1(1)(b), which provides for the judicial dissolution of a corporation if the corporation has continued to exceed or abuse the authority conferred upon it by law. The Director and the Department subsequently amended their counterclaims to add a count similar to the Attorney General's counterclaim. The Director's and the Department's amended counterclaim sought relief under section 354.180, which authorized the Director to issue cease and desist orders when it appears to him that any person is acting in violation of any law, rule or regulation relating to corporations subject to the provisions of sections 354.010 to 354.380.
On July 1, 1996, Blue Cross filed a motion for summary judgment on three counts of its petition and on all counts of the Director's and the Department's counterclaims. It also filed a motion for summary judgment on the Attorney General's counterclaim. The Attorney General filed a motion for partial summary judgment on his counterclaim on July 31, 1996, seeking a declaration that Blue Cross had continued to exceed or abuse its authority conferred upon it by law and a determination of what relief would be appropriate under section 355.726.
Following arguments on Blue Cross's motion for summary judgment, the trial court granted the motion on September 9, 1996. It found that the 1994 reorganization and offering was authorized under nonprofit corporation laws, the Director and the Department were not authorized to revoke or reverse the Director's April 1994 approval of the reorganization, and Blue Cross did not owe, and the Director was not authorized to demand, a payment or charitable asset settlement as a result of the reorganization. The court, therefore, enjoined the Director and the Department from commencing a valuation of Blue Cross's assets for the purpose of demanding a charitable asset settlement or commencing any administrative proceedings regarding the reorganization. The court did not address the Attorney General's motion for partial summary judgment on his counterclaim in its September 9, 1996 order.
On December 30, 1996, the trial court entered three separate orders. In its first order, the court granted partial summary judgment to the Attorney General on his counterclaim. It found that Blue Cross had continued to exceed or abuse its authority conferred upon it by law and was, therefore, subject to judicial dissolution proceedings pursuant to section 355.726.1. The court also found that it was required by sections 355.726.2(1), 355.726.2(2) and 355.726.2(3) to consider whether there are reasonable alternatives to dissolution and whether dissolution is in the public interest (if the corporation is a public benefit corporation) or is the best way of protecting the interests of members (if a mutual benefit corporation). These considerations were delayed, however, pending appellate review of the judgment.
The trial court's second order, filed the same day, reconsidered its September 9, 1996 order granting summary judgment to Blue Cross on the Director's and the Department's counterclaims. The court granted the Director's and the Department's oral motions for summary judgment on two counts of their amended counterclaims. Specifically, it found that the Director's April 1994 approval did not prevent the Director from asserting that post-reorganization operations of Blue Cross violated provisions of the Health Services Corporations Law, sections 354.010 to 354.380. It also found that within the last three years, Blue Cross had continued to exceed or abuse its statutorily permissible purposes and the authority conferred upon it by law.
The final order entered by the court on December 30 modified its previous September order. The court noted that to the extent the December orders contradicted the September order, the December orders superseded the previous order. This appeal followed.
STANDARD OF REVIEW
Appellate review of the grant of summary judgment is de novo. ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp. , 854 S.W.2d 371, 376 (Mo. banc 1993). The record is reviewed in the light most favorable to the party against whom judgment was entered, according that party all reasonable inferences that may be drawn from the record. Id.
Summary judgment will be upheld on appeal if the movant is entitled to judgment as a matter of law and no genuine issues of material fact exist. Id. at 377. Facts contained in affidavits or otherwise in support of a party's motion are accepted as true unless contradicted by the non-moving party's response to the summary judgment motion. Id. at 376. For a claimant to establish a right to judgment as a matter of law, the claimant must show that there is no genuine dispute as to those material facts upon which the claimant would have the burden of persuasion at trial. Id. at 381.
Once the movant has established a right to judgment as a matter of law, the non-movant must demonstrate that one or more of the material facts asserted by the movant as not in dispute is, in fact, genuinely disputed. Id. The non-moving party may not rely on mere allegations and denials of the pleadings, but must use affidavits, depositions, answers to interrogatories, or admissions on file to demonstrate the existence of a genuine issue for trial. Id.; Reeves v. Keesler , 921 S.W.2d 16, 19 (Mo.App. 1996).
I. JURISDICTION
Initially, Blue Cross asserts that the trial court lacked jurisdiction over the Attorney General's counterclaim. Specifically, Blue Cross argues that the Attorney General's counterclaim seeking judicial dissolution under section 355.726.1(1)(b) was actually a delinquency proceeding under section 375.1154 of the Insurers Supervision, Rehabilitation and Liquidation Act, sections 375.1150 to 375.1246. A delinquency proceeding under the act is defined as "any proceeding instituted against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer." § 375.1152(4). Section 375.1154 authorizes only the Director to commence a delinquency proceeding and provides that no court shall have jurisdiction to entertain, hear or determine any complaint praying for the dissolution, liquidation, rehabilitation, sequestration, supervision, conservation or receivership of any insurer. §§ 375.1154.1 and 375.1154.2. Thus, Blue Cross asserts, the trial court did not have jurisdiction in this case to determine the Attorney General's counterclaim.
Chapter 375 regulates insurance companies in Missouri. Chapter 355 governs general nonprofit corporations, and Chapter 354 governs health services corporations. Each chapter provides the procedure for dissolution of a corporation or insurer. See § 354.140, § 355.726, and § 375.1154 . Blue Cross was organized under the Missouri Nonprofit Corporation Act, Chapter 355, and operated as a health services corporation under sections 354.010 to 354.380. Section 355.020 provides that the provisions of Chapter 355 relating to nonprofit corporations apply to "[a]ll corporations organized under this chapter including all domestic corporations in existence on July 1, 1995, that were previously incorporated under this chapter." § 355.020.1(1). Section 354.015 provides that all health service corporations shall be subject to the provisions of sections 354.010 to 354.380, to the provisions of the other laws of the state that are specifically designated in sections 354.010 to 354.380, and to the provisions of any other laws of the state relating to insurance that specifically state they shall apply to health services corporations. Thus, Blue Cross was subject to the provision of Chapters 355 and 354, including the specific provisions for dissolution of the corporation, sections 355.726 and 354.140. Section 375.1150.2 of the Insurers Supervision, Rehabilitation and Liquidation Act in Chapter 375 provides that the proceedings authorized by the act may be applied to health services corporations. Blue Cross, as a health services corporation, therefore, was also subject to the provisions of the Insurers Supervision, Rehabilitation and Liquidation Act including section 375.1154 regulating delinquency proceedings.
Section 354.140 provides:
Any dissolution, liquidation, or rehabilitation of a corporation subject to the provisions of sections 354.010 to 354.380 shall be instituted and carried out pursuant to the provisions of chapter 355, RSMo, to the extent that the same are not inconsistent with the provisions of sections 354.010 to 354.380.
The Attorney General initiated this action through his counterclaim pursuant to section 355.726.1(1)(b) not section 375.1154. The Attorney General's action is a proceeding for judicial dissolution of a nonprofit health services corporation under the Missouri Nonprofit Corporation Act not a delinquency proceeding to dissolve an insolvent insurance company. Section 375.1154, therefore, is inapplicable in this case. Section 355.726.1(1)(b) provides that in a proceeding by the attorney general, the circuit court may dissolve a nonprofit corporation if it is established that the corporation has continued to exceed or abuse the authority conferred upon it by law. In his counterclaim, the Attorney General alleged pursuant to section 355.726.1(1)(b) that since the 1994 reorganization, Blue Cross has continued to act contrary to its statutory purpose as a health services corporation and has engaged in business or activity for profit. The circuit court, therefore, had jurisdiction to hear and determine the Attorney General's complaint. Point I is denied.
II. ESTOPPEL
In its next point on appeal, Blue Cross claims that Defendants were estopped from challenging the 1994 reorganization based on the Director's 1994 approval of the reorganization and offering. It contends that the trial court erred in applying an improper standard for estoppel and in determining that Blue Cross's affirmative defense of equitable estoppel failed.
Three elements must be proven to support a claim for equitable estoppel: (1) an admission, statement, or act inconsistent to a claim afterwards asserted, (2) action by another party in reliance upon such admission, statement, or act, and (3) injury to the other party resulting from allowing contradiction of the admission, statement, or act. State ex rel. Capital City Water Co. v. Missouri Public Serv. Comm'n , 850 S.W.2d 903, 910 (Mo.App. 1993).
The doctrine of equitable estoppel rarely applies to acts of a governmental body. Farmers' and Laborers' Coop. Ins. Ass'n v. Director of Revenue, State of Missouri , 742 S.W.2d 141, 143 (Mo. banc 1987); Director of Revenue v. Oliphant , 938 S.W.2d 345, 346 (Mo.App. 1997). The application of equitable estoppel against a governmental body is limited to exceptional circumstances where right or justice or the prevention of manifest injustice requires its application. Capital City Water Co. , 850 S.W.2d at 910 (citing Murrell v. Wolff , 408 S.W.2d 842, 851 (Mo. 1966)). Thus, in addition to satisfying the three elements of ordinary estoppel, a party claiming estoppel against the government must show that the governmental conduct on which the claim is based constitutes affirmative misconduct. Id.; Laciny Bros., Inc. v. Director of Revenue , 869 S.W.2d 761, 765 (Mo. banc 1994); Farmers' and Laborers' , 742 S.W.2d at 143. A party relying on the doctrine of estoppel has the burden of proving all of the essential elements by clear and satisfactory evidence. Oliphant , 938 S.W.2d at 346.
Blue Cross failed to meet its burden of proof on its affirmative defense of estoppel. First, the Director's 1994 approval of the reorganization and offering was not inconsistent with Defendants' claim that since 1994, Blue Cross had continued to exceed or abuse the authority conferred upon it by law. Defendants did not challenge the validity of the 1994 reorganization or seek to reverse or amend the reorganization. Instead, they asserted that Blue Cross had continued to act contrary to its statutory purposes as a health services corporation and had continued to engage in business or activity for profit. The act of the Director in approving the reorganization was not inconsistent to the claim afterwards asserted by Defendants. Second, Blue Cross failed to allege or demonstrate affirmative misconduct by the Director, the Department, or the Attorney General. The Director's conduct in approving Blue Cross's proposed reorganization and offering did not constitute affirmative misconduct sufficient to require application of the estoppel doctrine against the government. The trial court did not err in finding that Blue Cross's affirmative defense of estoppel failed. Point II is denied.
III. APPLICABILITY OF § 355.726
Blue Cross next claims that the trial court erred in allowing the Attorney General to assert his counterclaim under section 355.726. It contends that the counterclaim alleging that Blue Cross had continued to exceed or abuse the authority conferred upon it by law as a health services corporation was actually an action to challenge the validity of the 1994 reorganization, and, thus, section 355.726 was inapplicable in this case. Blue Cross argues that the action was an ultra vires challenge that could only have been properly brought in a proceeding under section 355.141. It also asserts that section 355.726 was not in existence at the time of the reorganization and could not be applied retroactively. Finally, it claims that section 355.726 requires a showing of multiple wrongful acts and a challenge to the 1994 reorganization did not satisfy this requirement.
A. Ultra Vires Challenges Under Section 355.141
An ultra vires act is an act by a corporation that exceeds its stated purposes and statutory powers. McWilliams v. Central States Life Ins. Co. , 137 S.W.2d 641, 645 (Mo.App. 1940). The use of the ultra vires doctrine as a defense by third persons or corporations seeking to escape liability or to avoid an obligation otherwise legal and equitable is disfavored in Missouri. Id. at 646. As a result, the General and Business Corporation Law of Missouri and the Missouri Nonprofit Corporation Act contain provisions abolishing the defense of ultra vires except in limited cases. §§ 351.395 and 355.141 . Section 355.141, which adopted in substantial portion the Revised Model Nonprofit Corporation Act, provides that the validity of corporate action generally may not be challenged on the ground that the corporation lacks or lacked power to act. § 355.141.1. Two exceptions exist where a corporation's power to act may be challenged: (1) in a proceeding against the corporation to enjoin an act where a third party has not acquired rights, and (2) in a proceeding against an incumbent or former director, officer, employee or agent of the corporation. §§ 355.141.2 and 355.141.3. The statutory limitations of the ultra vires doctrine serve to limit a corporation's use of the doctrine to avoid an obligation on the ground that the obligation is beyond its purposes or powers and to preserve the reasonable expectations of a third party who has dealt with a nonprofit corporation in good faith and without knowledge of the details of its articles of incorporation. Official Comment to § 3.04, Revised Model Nonprofit Corp. Act (1987). The official comments to the Revised Model Nonprofit Corporation Act further explain that the focus of the section is narrow in that the section only validates corporate actions that are attacked on the ground that the corporation had no power to act. Id. The section does not address actions that violate other provisions of a state's nonprofit act or other state or federal laws. Id.
In this case, Blue Cross claims that section 355.141 bars the Attorney General's action under section 355.726 because the Attorney General sought to invalidate a completed transaction (the 1994 reorganization) in which third parties (the purchasers of RightCHOICE stock) had acquired rights. The Attorney General was prohibited by section 355.141 from challenging the validity of the completed sale of RightCHOICE stock based on Blue Cross's lack of power to sell the stock. He, however, was not challenging the validity of the 1994 reorganization but the continuing operations of Blue Cross subsequent to the reorganization. Section 355.726 provides that a circuit court may dissolve a nonprofit corporation in a proceeding by the attorney general if it is established that the corporation has continued to exceed or abuse the authority conferred upon it by law. § 355.726.1(1)(b). Subsection 355.726.1(1) gives the attorney general the ability to test the legality of any actions taken by a nonprofit corporation. Official Comment to § 14.30, REVISED MODEL NONPROFIT CORP. ACT (1987). The Attorney General's counterclaim in this case sought relief under section 355.726 alleging that since 1994, Blue Cross had continued to act contrary to its statutory purposes as a health services corporation and had continued to engage in a business or activity for profit. Section 355.141 was inapplicable in this case, and the trial court properly allowed the Attorney General to assert his counterclaim under section 355.726.
B. Retroactive Application of Section 355.726
Blue Cross also asserts that the trial court erred in allowing the Attorney General to assert his counterclaim under section 355.726 because the provision was not in existence at the time of the 1994 reorganization and could not be applied retroactively to challenge the reorganization. Section 355.726 became effective on July 1, 1995. Prior to that, section 355.255, RSMo 1986, provided for the involuntary dissolution of a nonprofit corporation by a court decree if "[t]he corporation has continued to exceed or abuse the authority conferred upon it by this chapter." § 355.255(2), RSMo 1986 (emphasis added). Blue Cross claims, therefore, that the Attorney General's counterclaim alleging that it had continued to exceed or abuse the authority conferred upon it by law as a health services corporation under another chapter, Chapter 354, could not have been brought prior to July 1, 1995.
The validity of the August 1994 reorganization of Blue Cross was not challenged in this case. The Attorney General did not file his counterclaim to contest the legality of the reorganization. Instead, the Attorney General alleged that since the reorganization, Blue Cross had continued to operate contrary to its statutory purposes as a health services corporation and as a nonprofit corporation. The Attorney General's counterclaim contested the continued, illegal operations of Blue Cross. Whether section 355.726 existed at the time of the reorganization, therefore, did not limit the application of the statute in this case. Section 355.726 was not applied retroactively to challenge conduct in 1994. The trial court, therefore, did not err in allowing the Attorney General to assert his counterclaim under section 355.726.
C. "Continued" abuse of authority
Finally, Blue Cross argues that the trial court erred in allowing the Attorney General to assert his counterclaim under section 355.726 because section 355.726 requires a showing of multiple wrongful acts by Blue Cross. It asserts that its reorganization, which included the creation and operation of RightCHOICE, constituted a single corporate transaction, and, therefore, the Attorney General may not challenge the reorganization under section 355.726. Section 355.726 provides for the judicial dissolution of a nonprofit corporation by a circuit court if it is established that the corporation has "continued" to exceed or abuse the authority conferred upon it by law. § 355.726.1(1)(b). The primary rule in statutory construction is to ascertain the legislative intent and to give effect to that intent, if possible, considering the words in their plain and ordinary meaning. Green County v. State , 926 S.W.2d 701, 703 (Mo.App. 1996). The verb "continue" is generally defined as "to maintain without interruption a condition, course, or action." MERRIAM WEBSTER'S COLLEGIATE DICTIONARY 251 (10 th ed. 1994). Again, the Attorney General did not challenge the validity of the 1994 reorganization but the ongoing operations of Blue Cross following the reorganization. He claimed that in forming and operating RightCHOICE, Blue Cross had abandoned its statutory nonprofit purposes to engage in a business for profit. The Attorney General's challenge was to Blue Cross's continuing operation and, therefore, was properly asserted under section 355.726. Point III is denied.
IV. WHETHER BLUE CROSS CONTINUED TO EXCEED OR ABUSE THE AUTHORITY CONFERRED UPON IT BY LAW
Blue Cross next argues that Defendants failed to establish a right to judgment as a matter of law. Specifically, Blue Cross contends that Defendants failed to establish that Blue Cross had continued to exceed or abuse the authority conferred upon it by law.
In support of his written motion for partial summary judgment, the Attorney General contended that by carrying out its corporate restructuring in 1994, and by continuing to operate in its new corporate structure, Blue Cross had continued to act contrary to its statutory purposes as a nonprofit health services corporation. He argued that creation and operation of RightCHOICE, a for-profit subsidiary into which Blue Cross transferred 80% or more of its former nonprofit health plan business, did not serve the limited purposes for which Blue Cross was organized. Blue Cross maintained that the reorganization and subsequent operation of Blue Cross were consistent with its statutory purposes because (1) express statutory authority existed for the 1994 reorganization, (2) the reorganization was necessary for Blue Cross's survival in the rapidly evolving health care market, and (3) the reorganization benefitted the company and its subscribers by providing the company with liquidity, financial flexibility, and the means to offer its subscribers better services at lower prices.
In granting Defendants' motions for partial summary judgment, the trial court found that Blue Cross had continued to exceed or abuse the authority conferred upon it by law by continuing to act contrary to its purposes as a nonprofit health services corporation. Specifically, the court found that Blue Cross's creation and operation of RightCHOICE was inconsistent with its purposes to operate voluntary, nonprofit health plans and to not engage in a business or activity for profit. While the court noted that section 355.131(16) expressly permits a nonprofit corporation to carry on a business through a for profit subsidiary, it explained that the statutory purposes of a nonprofit health services corporation limits the express power. It stated,
The Court does not mean to suggest that a health services corporation may never operate a for-profit health plan through a subsidiary. If a for-profit health plan were operated as a reasonable means of furthering the corporation's nonprofit business or activity, then the for-profit health plan would not be a business or activity engaged in for the purpose of profit.
Having determined that the purpose of creating and operating RightCHOICE was to access capital markets and to engage in for-profit managed care business and not to expand or support Blue Cross's nonprofit health plan business, the court concluded that Blue Cross had continued to exceed or abuse the authority conferred upon it by law and, because Blue Cross raised no genuine issues of material fact, granted Defendants' motions.
A corporation is a creature of statute and, as such, may be formed only for a purpose authorized by the legislature. State ex rel. Webster v. Lehndorff Geneva, Inc. , 744 S.W.2d 801, 808 (Mo. banc 1988); 18 C.J.S. Corporations § 28 (1990). Purpose clauses, whether contained in a statute or in a corporation's articles of incorporation, refer to the general objects or aims sought to be attained by the corporation and state the general scope and nature of the corporation's business. 1A FLETCHER CYCLOPEDIA CORPORATIONS § 91 (1993). A corporation's powers are also derived from a grant by the legislature or its articles of incorporation. 19 C.J.S. Corporations § 554 (1990). Power clauses indicate the manner in which the purpose may be pursued. 1A FLETCHER CYCLOPEDIA CORPORATIONS § 91 (1993). A corporation possesses all powers of a natural person except those specifically forbidden to the corporation by law. City of St. Louis v. Institute of Med. Educ. and Research , 786 S.W.2d 885, 888 (Mo.App. 1990); Pilgrim Evangelical Lutheran Church of Unaltered Augsburg Confession v. Lutheran Church-Missouri Synod Found. , 661 S.W.2d 833, 838-839 (Mo.App. 1983); Komanetsky v. Missouri State Med. Assoc. , 516 S.W.2d 545, 553 (Mo.App. 1975). Such powers include those implied powers that are appropriate, convenient, suitable, and reasonably necessary to exercise express statutory powers or to accomplish the purpose for which the corporation was organized. Id. A corporation enjoys reasonable discretion regarding the manner and means for attaining its stated purpose, and a court will not interfere with a fair and reasonable exercise of discretion unless there is such a substantial departure from the dominant purpose of the corporation as to amount to perversion. Ranken-Jordan Home for Convalescent Crippled Children v. Drury College , 449 S.W.2d 161, 166 (Mo. 1970); City of St. Louis , 786 S.W.2d at 889. The powers possessed by a corporation, therefore, can be no broader than the purpose for which it was organized, and when a corporation is organized for a special purpose, it is limited in its powers to that purpose. See Blue Cross and Blue Shield of Connecticut, Inc. v. Mike , 184 Conn. 352, 439 A.2d 1026, 1029 (Conn. 1981); 18 C.J.S. Corporations § 28 (1990).
The Missouri Nonprofit Corporation Act, Chapter 355, contains two purpose clauses. Section 355.126 is broad and provides that every corporation incorporated under the chapter has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of incorporation or the corporation is subject to limitations of another statute of the state. §§ 355.126.1 and 355.126.2. Section 355.025 is more limiting and identifies specific purposes for which a nonprofit corporation may be organized. It provides:
Nonprofit corporations may be organized under this chapter for any one or more of the following or similar purposes: charitable; benevolent; eleemosynary; educational; civic; patriotic; political; religious; cultural; social welfare; health; cemetery; social; literary; athletic; scientific; research; agricultural; horticultural; soil, crop, livestock and poultry improvement; professional, commercial, industrial, or trade association; wildlife conservation; homeowner and community improvement association; recreational club or association; and for the ownership and operation of water supply facilities for drinking and general uses; and for the ownership of sanitary sewer collection systems and waste water treatment facilities; or for the purpose of executing any trust, or administering any community chest, fund or foundation, to further objects which are within the purview of this section.
Id. Likewise, Chapter 354 contains a purpose clause applicable to health service corporations. Section 354.025 provides that health service corporations may be organized for one or more of three specific purposes:
of establishing and operating a voluntary, nonprofit plan or plans under which hospital care, medical-surgical care, and other health care and services, or reimbursement therefor, may be furnished to persons who become members or beneficiaries; of acting as agent or intermediary for other health services corporations, for any governmental body or agency, or for other corporations, associations, partnerships or individuals in the field of health care and services; and of research, education or related activity to further objects within the purview of sections 354.010 to 354.380.
§ 354.025. Finally, both the Heath Services Corporation Law and the Missouri Nonprofit Corporation Act contain an additional limitation on the purpose for which a health services corporation or a nonprofit corporation may be organized. Both Acts prohibit a for-profit business from being organized or from operating as a health services corporation or as a nonprofit corporation. §§ 354.030 and 355.025 . Section 354.030 provides, "No group, association or organization created for or engaged in business or activity for profit . . . shall be organized or operate, directly or indirectly, as a health services corporation under sections 354.010 to 354.380." Section 355.025 provides, "No group, association or organization created for or engaged in business or activity for profit . . . shall be organized or operate as a corporation under this chapter."
Chapters 354 and 355 also confer upon a nonprofit health services corporation numerous powers. Section 354.050 states that a health services corporation "shall have all the powers, rights and privileges of a corporation organized under chapter 355, RSMo, except insofar as such provisions are inconsistent with the provisions of sections 354.010 to 354.380." Section 355.131 provides a broad grant of powers in stating that every nonprofit corporation "has the same powers as an individual to do all things necessary or convenient to carry out its affairs." The statute also sets forth a nonexclusive list of specific powers. § 355.131.
The question presented in this case is whether Blue Cross's continued operation of RightCHOICE, its for-profit subsidiary, was a substantial departure from its purpose as a nonprofit health services corporation as to amount to a perversion. See Rankin-Jordan , 449 S.W.2d at 166. While the power to "carry on a business or businesses, either directly or through one or more for profit or nonprofit subsidiary corporations" is among a nonprofit corporation's express statutory powers, § 355.131(16), the power is limited to the purpose for which the nonprofit corporation was organized. Similarly, a health services corporation's power to conduct business through a for-profit subsidiary must be consistent with the Health Services Corporations Law, sections 354.010 to 354.380. § 354.050. As the trial court noted, a health services corporation may carry on a health plan business through a for-profit subsidiary if the for-profit health plan business furthers the corporation's nonprofit plans or related activities. In creating and operating RightCHOICE, Blue Cross effectively abandoned its nonprofit purposes to engage in a business for profit. The purpose of the reorganization was not to further or support Blue Cross's nonprofit activities. Instead, the reorganization was conducted, as stated in RightCHOICE's Form S-1 Registration Statement filed with the SEC two months before the reorganization, "to provide the Company with access to the capital markets to expand the Company's health care benefit plans and services and geographic base, both through internal growth and acquisition." The immediate result of the 1994 reorganization was the transfer of 80 to 90% of its nonprofit health plan business to RightCHOICE. Before the reorganization, Blue Cross was the largest provider of managed health care benefits in Missouri. In the four years prior to the reorganization, Blue Cross reported premium revenues of between $597 million and $842 million, net income gains of between $17.3 million and $25.5 million, and net underwriting gains of between $4.8 million and $19.1 million. The first full year after the transfer of the majority of its business to RightCHOICE, Blue Cross was reporting premium revenues of only $82 million, one-tenth of the premium revenues reported before the reorganization. Blue Cross also reported a net loss of $1.4 million and a net underwriting loss of $8.9 million the year after the reorganization.
RightCHOICE, on the other hand, became the largest provider of managed health care benefits in Missouri after the reorganization. In 1994, RightCHOICE reported $583.6 million in total revenues with a net income of $27.7 million. In 1995, its net income was approximately $23.6 million. For the six-month period ended June 30, 1996, the subsidiary reported total revenues of $319.3 million with a net income before taxes of $15.7 million. Yet, despite the fact that RightCHOICE earned millions of dollars in profits, the subsidiary did not utilize those gains to fulfill Blue Cross's nonprofit obligations. Instead, all profits generated by RightCHOICE were reinvested into the for-profit subsidiary to foster its for-profit purposes. In its Form S-1 Registration Statement, RightCHOICE stated that it planned to retain all of its earnings for the development and expansion of its business. In fact, as reported in its Form 10-Ks filed with the SEC, RightCHOICE retained its 1994 and 1995 earnings for use in its business and anticipated, for the foreseeable future, that no dividends would be paid on its common stock.
The post-reorganization operation of RightCHOICE resulted in a drastic reduction of the Blue Cross's most valuable health plans and in net operating and underwriting losses in the millions of dollars. Meanwhile, RightCHOICE earned profits in the tens of millions of dollars. Although Blue Cross owned 80% of the stock in RightCHOICE, RightCHOICE reinvested all profits generated by the for-profit subsidiary into its for-profit activities and did not distribute any profits to Blue Cross to support its nonprofit business. In forming and operation RightCHOICE, Blue Cross effectively abandoned its nonprofit purposes to engage in a business for profit.
Blue Cross's intent to abandon its nonprofit purposes was evidenced throughout the record. In a March 22, 1994 meeting of the Executive Committee of the Board of Trustees of Blue Cross, the proposed reorganization and creation of RightCHOICE were discussed. Minutes of the meeting reflected,
[Legal counsel] discussed some of the legal intricacies of how one proceeds from a not for profit company, [Blue Cross], to a for profit company, in which the parent owns approximately 80%. . . . One of the obstacles of the Missouri not for profit law is that it does not allow [Blue Cross] to convert into a for profit entity. The only way to remove the assets directly into that medium would be a dissolution, which is not a viable alternative. Through the advice from consultants and agreement with management, it seems that the [Blue Cross] Articles of Incorporation need to be re-configured so the managed care portion can be nourished into growth and so negotiating leverage in other fields can be developed as these are necessary to remain competitive and to accomplish access to the equity capital markets as needed.
Since [Blue Cross] cannot sell stock under Missouri law, those assets that are needed to generate growth and income must be taken and put into a for profit entity, thus being the reason for creating [RightCHOICE].
(Emphasis added). In fact, Blue Cross did "reconfigure" its articles of incorporation three times from April 13, 1994, to June 20, 1995, and effectively eliminated its nonprofit purposes. The first amendment deleted the purpose of operating voluntary, nonprofit health plans and added the purpose of engaging in a managed health care business. The second amendment in April 1995 further altered the character of Blue Cross by abolishing the company's membership. Finally, the last amendment deleted the nonprofit purpose of advancing "the availability of quality health care by promoting and safeguarding the public health by collection of information, statistics and data on health care matters and by participation in such benevolent, educational and related activities as are intended to benefit the public health." The amendment also replaced the former dissolution clause with a new provision that provided for the distribution of the company's assets to the subscribers upon dissolution. By the final amendment, all nonprofit purposes had been effectively abolished.
Blue Cross argues that its adoption of a strategic plan to liquidate its holdings in RightCHOICE over the next 20 years and to use the proceeds to further its section 354.025 purposes is direct evidence that it did not abandon its nonprofit purposes. As the trial court found, this argument in unpersuasive given the fact that the plan was adopted in June 1996, a month after litigation in this case began. Likewise, Blue Cross's amendment of its articles of incorporation in December 1995 to reinstate the previously abolished purposes of operating and maintaining voluntary, nonprofit health plans and of engaging in research, education or related activities in furtherance of its purposes did not constitute a genuine issue of whether it abandoned its statutory purposes. Again, the amendment occurred after the Department began investigating Blue Cross's operations. Additionally, Blue Cross admits in its briefs on appeal, that it only reinserted the nonprofit purpose clauses to "mollify" the Director during his investigation.
Blue Cross contends that the reorganization and subsequent operation of RightCHOICE was necessary for the company's survival in the evolving health care market and, in fact, benefitted the company and its subscribers. It claims that the reorganization allowed Blue Cross to satisfy its capital needs by accessing the equity markets. It also claims that Blue Cross gained greater liquidity and financial flexibility as a result of the reorganization. Blue Cross argues that its decision to take reasonable steps to ensure its long-term viability is protected from judicial review by the business judgment rule and can not constitute a perversion of its statutory purposes.
The business judgment rule protects the fair and honest business judgments or decisions of directors, officers, or a majority of shareholders from interference by the courts. McKnight v. Midwest Eye Institute of Kansas City, Inc. , 799 S.W.2d 909, 913 (Mo.App. 1990); Broski v. Jones , 614 S.W.2d 300, 304 (Mo.App. 1981). The business judgment rule does not, however, shield judgments or decisions that are illegal, fraudulent, or ultra vires. Broski , 614 S.W.2d at 304. An illegal act is one "expressly prohibited by statute or public policy." McLeese v. J.C. Nichols Co. , 842 S.W.2d 115, 118 (Mo.App. 1992). As discussed above, the powers possessed by a corporation can be no broader than the purpose for which it was organized. As a nonprofit health services corporation, Blue Cross's powers were limited to the specific purposes set out in Chapters 354 and 355. The exercise of a power contrary to those statutory purposes is illegal and, therefore, not protected by the business judgment rule. The business judgment rule did not protect Blue Cross's decision to reorganize and its subsequent operations where the reorganization and subsequent operations effectively resulted in an abandonment of its nonprofit purposes. Even if the reorganization was necessary for the company's survival, it was illegal and not protected by the business judgment rule.
Furthermore, Blue Cross's contentions that the reorganization and subsequent operation of RightCHOICE was necessary for the company's survival and actually benefitted the company were not supported by the record. In the four years prior to the reorganization, Blue Cross was the largest provider of managed health care benefits in Missouri. It earned premium revenues in the hundreds of millions of dollars. It had net income gains of between $17.3 million and $25.5 million, and net underwriting gains of between $4.8 million and $19.1 million. Blue Cross was not experiencing financial difficulties in the years preceding the reorganization.
The undisputed evidence also revealed that Blue Cross did not need a new source of capital. In reports to the SEC in 1994, RightCHOICE described the capital position of Blue Cross in the early 1990s:
Liquidity and Capital Resources
For the years ended December 31, 1991, 1992 and 1993, and the three month period ended March 31, 1994, cash provided by operations was $55.9 million, $29.4 million, $26.8 million and $9.3 million, respectively. Primary sources of cash are premiums received and investment income, while primary uses include health care claims and capitation payments, brokers' commissions, and general and administrative expenses. The Company receives premium revenue in advance of anticipated claims, typically up to two months prior to the expected cash payment for related health care services. Cash in excess of current needs is invested in fixed income and equity securities. During 1991, 1992, 1993, and the First Quarter of 1994, cash flows generated from operations were more than sufficient to fund the operating and capital expenditure requirements of the Company.
Although the Company's business is not capital intensive, in fiscal 1992 and 1993 the Company incurred $0.3 million and $6.8 million resulting from relocating the corporate headquarters and purchasing related furniture and computer equipment, respectively. In order to provide financing for these capital and other expenditures, take advantage of favorable borrowing rates, and maintain liquidity, the Company entered into reverse repurchase agreements in 1992 and 1993.
(Emphasis added). Following the reorganization and transfer to RightCHOICE of a majority of Blue Cross's health plan business in August 1994, RightCHOICE had $173 million available for general corporate use. Yet, it reported to the SEC at the end of 1994 that it did not have plans for using these resources:
The Company currently has no definitive commitments for future use of its current or expected increased levels of available cash resources; however, management continually evaluates opportunities to expand the Company's specialty managed care services and health plan operations. The Company's expansion options may include additional acquisitions and internal development of new products and programs. The Company's available cash resources will remain in interest-bearing investments until they are utilized for such purposes.
(Emphasis added). Blue Cross's contention that it critically needed a new source of capital is unpersuasive where it admitted that it was "not capital intensive," its "cash flows from operations were more than sufficient to fund [its] operating and capital expenditure requirements," and it did not have definitive commitments for the use of the cash resources on hand.
Blue Cross's arguments that its nonprofit health plans were unable to compete effectively in the new health care environment were also rebutted by representations made to the SEC. RightCHOICE explained in June of 1994, two months before the reorganization, that it was using its "cost advantage" to price aggressively and expand its business:
The Company believes that its HMO has the lowest medical cost per member per month of any HMO in the St. Louis metropolitan area. The Company's HMO cost structure is predicated primarily on the selection of a narrower network of efficient providers, aggressive negotiation with those providers of prices and terms of health care delivery and effective implementation of utilization management techniques. As part of its strategy to increase membership in its HMO, the Company took a number of steps to exploit that cost advantage, including more aggressive pricing and adding 272 physicians and 8 hospitals to the network. Together these steps have contributed to the addition of 6,665 new members during the first quarter of 1994, and increase of 10.7%.
(Emphasis added). These representations only confirm Blue Cross's competitive strength prior to the reorganization. The evidence does not support Blue Cross's assertions to the trial court and on appeal that the reorganization was necessary for its survival.
Blue Cross's continued operation of the for-profit subsidiary, RightCHOICE, was a substantial departure from its statutory purposes to establish and operate voluntary, nonprofit health plans and to not engage in a business or activity for profit and constituted an abuse of its authority as a nonprofit health services corporation. Defendants established that Blue Cross had continued to exceed or abuse the authority conferred upon it by law and that they were entitled to judgment as a matter of law. Because Blue Cross failed to demonstrate that one or more of the material facts was genuinely disputed, the trial court properly granted partial summary judgment in favor of Defendants. Point IV is denied.
Blue Cross argues that the trial court improperly placed the burden of proof on it in this case. Rule 74.04 places upon the party moving for summary judgment the burden of establishing, based on undisputed facts, its entitlement to judgment as a matter of law. ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp. , 854 S.W.2d 371, 381 (Mo. banc 1993). Once the movant has established a right to judgment as a matter of law, the burden shifts, and the nonmovant must demonstrate that one or more of the material facts asserted by the movant as not in dispute is, in fact, genuinely disputed. Id. at 381. Blue Cross contends that the trial court required it to affirmatively prove that the reorganization was "reasonably necessary" to "further" its statutory purposes. This contention is erroneous. As acknowledged by the trial court, Defendants had the burden of establishing, as a matter of law, that Blue Cross had continued to exceed or abuse the authority conferred upon it by law. In support of their motions for summary judgment, Defendants presented evidence of Blue Cross's effective abandonment of its statutory purposes with the formation and operation of RightCHOICE. This evidence, as discussed in Point IV, established their right to judgment as a matter of law. In response, Blue Cross unsuccessfully attempted to dispute some of the facts asserted by Defendants as undisputed. It also attempted to present other arguments to defeat Defendants' right to judgment including the argument that the reorganization was necessary for Blue Cross's survival. As discussed, this argument did not defeat Defendants' right to judgment.
V. MOTION TO SUPPLEMENT THE RECORD
In its final point on appeal, Blue Cross claims that the trial court erred in denying its motion to supplement the summary judgement record. Blue Cross requested the court to consider additional documents in support of its contention that the reorganization was necessary for Blue Cross's survival. Blue Cross claims that the "survival" issue was a new theory interjected by the court and that it was unable to put forth evidence to address it.
Rule 74.04(c)(2) provides that a response to a motion for summary judgment and materials in support thereof must be served within 30 days after the summary judgment motion is served. Rule 74.04(c)(2). The rule allows a court to extend the 30-day deadline only where the time for discovery has been inadequate and upon affidavit. Id.; Butler v. Tippee Canoe Club , 943 S.W.2d 323, 325 (Mo.App. 1997). The deadline in Rule 74.04(c)(2) is mandatory. Butler , 943 S.W.2d at 325.
The Attorney General filed his motion for partial summary judgement on July 31, 1996. Blue Cross filed its motion to supplement the summary judgment record on December 20, 1996. The motion alleged that the documents to be presented related to legal issues raised for the first time after the close of the briefing on the pending motions. This allegation was refuted by the record. In response to the Attorney General's summary judgment motion, Blue Cross filed its response to the motion and its own motion for summary judgment on the Attorney General's counterclaim on August 30, 1996. In its response and motion for summary judgment, Blue Cross raised the "survival" issue in an attempt to demonstrate that it was operating in accordance with its statutory purposes. In a memorandum in support of its response and motion for summary judgment, Blue Cross argued:
The Reorganization permitted Blue Cross to remain viable in a rapidly changing, highly-competitive health care market. Nationally prominent consultants advised Blue Cross that to survive in this market, it needed to raise equity capital to improve its infrastructure, grow its business and achieve greater economies of scale. This could be done through the Reorganization and Public Offering. The only viable alternative to raising equity capital — which Blue Cross rejected — was to raise premium rates paid by subscribers to Blue Cross' voluntary, nonprofit health plans. It is beyond argument that taking an action which permitted Blue Cross to continue to survive and offer voluntary, nonprofit plans at reasonable rates is consistent with Blue Cross' HSC purposes.
Blue Cross cited two affidavits to support this argument. At the hearing on the Attorney General's motion for summary judgment, Blue Cross again made its "survival" argument. Its contention that it did not have the opportunity to address the issue was, therefore, unpersuasive.
Finally, as stated in Point IV, even if the additional documents proved that the reorganization and subsequent operation of RightCHOICE were necessary to ensure Blue Cross's long-term viability in the evolving heath care industry, Blue Cross's post-reorganization operation was a continued abuse of the authority conferred upon it by Chapters 354 and 355. The additional documents, therefore, were not material to the issues. The trial court did not err in denying Blue Cross's motion to supplement the record. Point V is denied.
The judgment of the trial court is affirmed.
All concur