Opinion
C.A. No. 03C-012-001 (THG).
Submitted: August 31, 2006.
Decided: November 30, 2006.
John M. Murray, Esquire, CPA, Law Office of John M. Murray, P.O. Box 272, Nassau, Delaware 19969, Attorney for Plaintiff Kester Crosse.
Eugene H. Bayard, Esquire, Wilson, Halbrook Bayard, 107 West Market Street, P.O. Box 690, Georgetown, Delaware 19947, Attorney for Plaintiff Kester Crosse.
J. Brendan O' Neill, Esquire, Law Office of Brendan O'Neill, 727-B North Market Street, Wilmington, Delaware 19801, Attorney for Plaintiff Kester Crosse.
Thomas P. Preston, Esquire, and Elizabeth A. Wilburn, Esquire, Blank Rome LLP, 1201 North Market Street, Suite 800, Wilmington, Delaware 19801, Attorneys for Defendant BCBSD.
DECISION ON DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S EXCESS SURPLUS CLAIMS DEFENDANT'S MOTION GRANTED
Statement of the Case
Kester Crosse filed a Verified Class Action Complaint in Chancery Court against Blue Cross Blue Shield of Delaware, Inc. ("Defendant" or "BCB SD") alleging that BCBSD: (1) has received rebates and other price reductions from secret dealings with health care providers that BCBSD has not passed on to its customers in violation of common law, statutory law and in breach of its contracts with plan participants; (2) has accumulated profits and a multi-million dollar surplus, in violation of its non-profit status; and (3) has breached its fiduciary duty to its insureds by failing to pass on rebates of the accumulated surplus profits. The Court of Chancery dismissed the fiduciary claim for failure to state a claim upon which relief can be granted, finding that BCBSD did not owe a fiduciary duty to plan participants. The Court of Chancery also dismissed the remainder of the claims for want of subject matter jurisdiction, finding that the remaining claims could be resolved by awarding damages and should be properly considered by a court of law rather than a court of equity. The Supreme Court of Delaware upheld the Court of Chancery's decision, finding that no fiduciary duty exists between BCBSD and plan participants because the interests of the insurer and its insureds are not perfectly aligned. Crosse v. BCBSD, 836 A.2d 492 (Del. 2003). In so concluding, the Supreme Court found that the relationship between the insurer and each insured is purely contractual. Finally, the Supreme Court upheld the Court of Chancery's decision to dismiss the remainder of the claims, finding that damages are the traditional remedy for the remaining claims.
On December 4, 2003, the case was transferred from the Court of Chancery to the Superior Court. Shortly thereafter, at the direction of this Court, Plaintiff filed an Amended Complaint. The parties have engaged in limited discovery but, to date, no Answer has been filed. Pending now before the Court is BCBSD's Motion to Dismiss the so-called "Excess Surplus Claims." The Motion has been fully briefed by both parties. BCBSD argues Plaintiff has failed to state a claim upon which relief may be granted for the following counts, to the extent the counts rely upon Plaintiff's allegation that BCBSD has amassed an excess surplus: breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, violation of the Consumer Fraud Act, and negligent or other misrepresentation. BCBSD does not presently argue the merits of the rebate claims and this decision does not touch upon those claims. Discovery has been ordered to determine if a class action is appropriate as to the rebate claims.
The Court finds Plaintiff has failed to state any claim based upon the allegation that BCBSD's retention of a surplus, even an "excess" surplus, violates statutory or common law, or results in a breach of BCBSD's contracts of insurance. Accordingly, BCBSD's Motion to Dismiss the Excess Surplus Claims is granted. The reasons for this decision are elaborated upon below.
Statement of the Facts
BCBSD, a health insurance company, is a non-stock corporation organized under the Delaware General Corporation Law. BCBSD writes indemnity and managed care policies for insured subscribers. Under its enabling statute, Title 18 of the Delaware Code, BCBSD is regulated as a "health service corporation." Plaintiff is an insured subscriber of BCBSD. Plaintiff maintains that BCBSD has improperly failed to disclose discounts, rebates and other price reductions it negotiates with health care providers on to plan participants. Plaintiff also claims BCBSD has accumulated a surplus that is so excessive it renders BCBSD a for-profit company. Plaintiff asserts both actions have resulted in injury to plan participants and submits various legal theories to support his position that Plaintiff is entitled to the improperly retained funds.
Section 6302 of Title 18 reads as follows: "`Health service corporation' means a nonprofit corporation, without capital stock, organized under the laws of this State for the purpose of establishing, maintaining and operating plans to provide hospital, physicians' or related health services, or indemnity therefor, for such persons as become members or subscribers of any plan of such corporation."
In this claim, which is not at issue in this decision, Plaintiff alleges that BCBSD received "back door" reductions in fees charged by medical providers that it did not disclose to its policy holders. This failure to disclose resulted in the percentages paid by policy holders for services being higher than reported. By way of example, if the policy holder was to pay 10% of a $ 100.00 medical bill, it would pay $ 10.00. But if BCBSD negotiated a lower fee unbeknownst to the policy holder and the medical bill was really $ 90.00, then a $ 10.00 payment would be greater than the agreed upon 10%.
Motion to Dismiss Standard of Review
It is well-settled under Delaware law that a complaint will not be dismissed for failure to state a claim unless it appears reasonably certain "that a plaintiff would not be entitled to the relief sought under any set of facts which could be proven to support the action." Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998); Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985). In considering the sufficiency of the complaint, all well-pleaded allegations are accepted as true, and all reasonable inferences are construed in favor of the plaintiff. Havens v. Attar, 1997 WL 55957, at *5 (Del.Ch. Jan. 30, 1997). "A complaint[,] attacked by a motion to dismiss for failure to state a claim[,] will not be dismissed unless it is clearly without merit, which may be either a matter of law or of fact." Diamond State Tel. Co. v. University of Delaware, 269 A.2d 52, 58 (Del. 1978). In sum, the test for sufficiency is a broad one. It is measured by whether a plaintiff may recover under any reasonably conceivable set of circumstances susceptible of proof under the complaint. Spence v. Funk, 396 A.2d 967, 968 (Del. 1978); Klein v. Sunbeam Corp., 94 A.2d 385, 391 (Del. 1952). If the plaintiff may recover, the motion must be denied.
Having considered the sufficiency of the Amended Complaint, accepting as true all of Plaintiff's well-pleaded allegations and drawing all reasonable inferences in favor of Plaintiff, the Court cannot conclude that Plaintiff would be entitled to the relief sought under the excess surplus claims. BCBSD's Motion to Dismiss the Excess Surplus Claims is granted.
Discussion Summary of Arguments
Plaintiff urges the Court to find BCBSD has acquired a surplus so excessive that it serves to render BCBSD a "for-profit" corporation. Plaintiff asserts he relied upon the representation that BCBSD was a non-profit corporation when he elected to purchase health insurance from BCBSD and argues the fact that BCBSD holds itself out as a non-profit corporation, in spite of having an excess surplus, violates common law, statutory law, and is a breach of BCBSD's contracts with its subscribers. Plaintiff argues that it is appropriate for a jury to determine if Plaintiff's claims are well-founded because its allegations for purposes of this motion must be accepted as true.
BCBSD argues that, even assuming the existence of a large or "excessive" surplus, there is no authority for Plaintiff's position that this, in and of itself, results in a violation of BCBSD's non-profit status or otherwise indicates that BCBSD is doing business with a for-profit motive. Second, BCBSD claims the law of the case doctrine dictates that this Court dismiss the excess surplus claims. Third, BCBSD contends questions respecting BCBSD's surplus fall within the purview of the Insurance Department and, therefore, the Insurance Department has primary jurisdiction over this matter. Finally, BCBSD submits that the determination of the proper amount of surplus to retain is a decision entitled to deference pursuant to the business judgment rule and Plaintiff has failed to rebut the presumption of deference.
Law of the Case Doctrine
The Court concludes the law of the case requires the excess surplus claims be dismissed. Chief Justice Veasey, writing for the Supreme Court, observed as follows:
To the extent that BCBSD owes special duties as a "non-profit" entity, those duties are owed to the State, through regulation by the Insurance Commissioner. The State is providing the tax benefit that makes the non-profit status advantageous. The non-profit status of BCBSD is irrelevant from the standpoint of the insured and his or her contract.Crosse v. BCBSD, 836 A.2d 492, 496 (Del. 2003) (emphasis added). Plaintiff contends this language is, in essence, dicta because the Supreme Court was limited to considering the issue of the dismissal of the fiduciary duty claim and the removal of the remaining claims from the Court of Chancery for lack of subject matter jurisdiction. In point of fact, the claims now before the Court were not before the Supreme Court on their merits.
The law of the case doctrine requires that "findings of fact and conclusions of law by an appellate court are generally binding in all subsequent proceedings in the trial court or in a later appeal." Cede Co. v. Tehcnicolor, Inc., 884 A.2d 26, 39 (Del. 2005). It follows that the trial court may not make any decision or order that is inconsistent with the decision of the appellate court. Candlewood Timber Group, LLC v. Pan American Energy, LLC, 2006 WL 1382246 (Del.Super. May 16, 2006). The law of the case doctrine is grounded in "the principles of efficiency, finality, stability and respect for the judicial system." Cede Co., 884 A.2d at 39. Two of the many justifications for this rule of practice are (1) it avoids indefinite relitigation of the same issue, and (2) it promotes consistent results in the same litigation. 5 Am.Jur. 2d Appellate Review § 605.
Vice Chancellor Parsons recently summarized the doctrine as follows:
The law of the case is established "when a specific legal principle is applied to an issue presented by facts which remain constant throughout the subsequent course of the same litigation." Kenton v. Kenton, 571 A.2d 778, 784 (Del. 1990). Thus, once a matter has been addressed in a procedurally appropriate way by a court, it is generally held to be the law of that case and will not be disturbed by that court unless compelling reasons to do so appear. Frank v. Carol, 457 A.2d 715, 718-19 (Del. 1983). The law of the case doctrine is neither inflexible nor an absolute bar to reconsideration of a prior decision that is "clearly wrong, produces an injustice, or should be revisited because of changed circumstances." Hamilton v. State, 831 A.2d 881, 887 (Del. 2003) (two exceptions to the law of the case doctrine are: when "the previous ruling was clearly in error or there has been an important change in circumstances," or when "the equitable concern of preventing injustice" trumps the doctrine); Gannett Co. v. Kanaga, 750 A.2d 1174, 1181 (Del. 2000).W.L. Gore Associates, Inc. v. Wu, 2006 WL 2692584, at *11 (Del.Ch., Sept. 15, 2006).
The question before the Court is whether the Supreme Court's statement, "The non-profit status of BCBSD is irrelevant from the standpoint of the insured and his or her contract," is a conclusion of law or merely dicta. The Court is convinced the statement is a conclusion of law that binds this Court. Although the Supreme Court did not have before it all of the excess surplus claims currently before this Court, the claim before it for consideration-whether BCBSD owed a fiduciary duty to Plaintiff-was premised, in part, upon Plaintiff's excess surplus argument. In ruling that BCBSD's non-profit status did not create a special relationship between the parties, the Supreme Court necessarily had to comment upon the relationship between the parties and found it to be contractual. In so holding, the Supreme Court concluded that the nature of BCBSD's status as a non-profit was irrelevant to plan subscribers and relevant only to the State, which confers tax benefits to non-profit corporations. The Court interprets the language of the Supreme Court as barring Plaintiff from claiming injury due to an alleged violation of corporate non-profit status.
Merits
In the alternative, the Court finds Plaintiff's argument is without substantive merit. The Court will discuss the problems with the general concept of "excess surplus" first and follow that discussion with an analysis of the elements of each of the claims.
The Surplus
1. What is a "surplus " and how does it relate to a corporation's non-profit status?
Black's Law Dictionary defines "surplus" as "[t]he excess of receipts over disbursements." Black's Law Dictionary 1456 (7th ed. 1999). Assuming, arguendo, that BCBSD has an excess surplus, Plaintiff does not cite and the Court cannot locate any authority for the proposition that the retention of that surplus transforms BCBSD into a for-profit corporation. In fact, the case law is quite clear on the point that the relevant analysis for determining whether an entity is in violation of its non-profit status is not to look at the existence of a surplus but to examine the manner in which the corporation is conducting its business. The Delaware Supreme Court has clarified the concept of "profit" as follows:
Whether dividends are expected to be paid may, generally speaking, be taken as the test by which we are to determine whether, or not, a given corporation is organized for profit. Perhaps a better way to put it would be to say that a corporation is for profit when its purpose is, whether dividends are intended to be declared or not, to make a profit on the business it does which in reason belongs to it and which if its affairs are administered in good faith would be available for dividends. . . .
Profit furthermore must be something of a tangible or pecuniary nature. Intangible benefits not capable of measurement in definite terms, though of value to the recipients, cannot be called profits. . . . [T]he term `profit' . . . means gai n or earnings that are expected to come into the possession of the corporation.Read v. Tidewater Coal Exch., 116 A.2d 898, 904 (Del.Ch. 1922).
Taking Plaintiff's allegation of an excess surplus as true, the existence of a surplus in no way translates into proof that a business is organized for profit.
2. Is the existence of a surplus entitled to any presumptions under the business judgment rule?
Plaintiff argues that he was induced to do business with BCBSD because it is a non-profit entity and, thus, he is entitled to challenge BCBSD's standing as a non-profit. BCBSD does not have a monopoly on the health insurance coverage market. The Court finds that Plaintiff has the economic freedom to decide if he wants medical insurance and, if so, with whom he wants to do business. By contracting with BCBSD, Plaintiff did not become a shareholder, equitable owner or partner with BCBSD. Plaintiff has no standing to complain about BCBSD's business decisions or to otherwise seek to substitute his business judgment for BCBSD's business judgment solely because he contracted with BCBSD. Nor does Plaintiff have a right as a citizen to force BCBSD to make business decisions that he believes are appropriate. Corporations, including non-profits, are permitted to make their own business judgments. Williams v. Geier, 671 A.2d 1368, 1377-78 (Del. 1996). The Courts in this State long ago established the case law that permitted directors of corporations wide latitude to make decisions as to their business. Excepting limitations not relevant here, the Courts do not get involved in "g rading", or otherwise evaluating, corporate business decisions with the benefit of hindsight. Thus, the decision of BCBSD's Board of Directors to maintain a surplus will be subject to deference. It is not up to the courts, be it the Court of Chancery, Superior Court, or a Superior Court jury to substitute its judgment for that of the board of directors. Plaintiff has failed to take into account the business judgment presumption in his pleading.
Surely even Plaintiff must admit that some surplus may serve to offset costs to plan participants under certain factual scenarios. For example, consider the situation in which a sudden influenza ("flu") epidemic strikes Delaware and BCBSD must use extra resources to cover a marked increase in plan participants seeking coverage for receiving the flu vaccine. Plaintiff is interested in receiving a "refund" of the excess surplus but does not consider the flip side-how is BCBSD to recover additional expenditures? Assuming Plaintiff would approve of BCBSD seeking to recoup its expenses from plan participants, how much additional money would it cost BCBSD to seek reimbursement for its additional expenditures? These are just some of the questions BCBSD must have to consider when deciding what level of surplus to maintain.
3. Who should regulate the existence of any surplus?
As evidenced by BCBSD's enabling statute, the health service corporation is a legislative creation. The Insurance Commissioner is explicitly charged with issuing the certificate of authority and given the power to revoke the right of a health service corporation to do business. 18 Del. C. § § 6305, 6308. The Insurance Commissioner expressly retains regulatory control over many aspects of the health insurance corporation's manner of doi ng business. In addition, the Insurance Commissioner has the powers reasonably implied from the Insurance Code. 18 Del. C. § 310. It is not for individuals or a class of individuals to usurp the government's function in recognizing and overseeing non-profit organizations.
In sum, the Court concludes that, under existing case law, the existence of a surplus (a) does not directly affect a corporation's non-profit status and (b) is subject to deference to the extent the surplus is the result of a business decision. Nevertheless, the Court also observes that, if it deems such action appropriate, the Insurance Commissioner may weigh in on the issue of acceptable levels of surplus for a non-profit organization. In any case, the appropriateness or inappropriateness of a surplus is not a matter for the Court, or any fact finder, to decide.
With these observations in mind, the Court addresses Plaintiff's specific claims.
The Claims
1. Breach of Contract
Plaintiff alleges BCBSD has breached its duties and obligations under its contracts of insurance with plan participants by accumulating an "unwarranted" surplus in amounts "far greater than necessary for its financial solvency or the protection of policy holders, subscribers, and members". For the multitude of reasons set forth above, Plaintiff has failed to plead an obligation or duty that was breached by BCBSD's retention of a surplus. The fact that a non-profit organization simply has "extra" funds at the end of the day doe s not support a claim for breach of contract.
2. Breach of Implied Covenants of Good Faith and Fair Dealing
The implied covenant of good faith and fair dealing "requires the parties to perform, in good faith, the obligations required by their agreement, and a violation of the covenant occurs when either party violates, nullifies or significantly impairs any benefit of the contract". 17A Am. Jur. 2d Contracts § 370. Moreover, "[w]hen one undertakes to accomplish a certain result, he or she agrees by implication to do everything to accomplish the result intended by the parties." Id. Notably, the implied covenants do not create obligations outside of those provided for in the contract between the parties. "Existing contract terms control . . . such that implied good faith cannot be used to circumvent the parties' barga in, or to create a free-floating duty . . . unattached to the underlying legal document." Dunlap v. State Farm Fire Cas., 878 A.2d 434, 441 (Del. 2005) (internal quotation marks and citation omitted).
Plaintiff alleges BCBSD breached the implied covenants of good faith and fair dealing by giving more consideration to its own financial interests than to those of Plaintiff. Plaintiff has simply failed to allege any facts that support a claim that the insurance contract between Plaintiff and BCBSD prohibited, either explicitly or implicitly, BCBSD from amassing a surplus. Plaintiff may not use this claim as a means to impose a duty upon BCBSD where one does not exist.
3. Unjust Enrichment
Plaintiff contends BCBSD has been unjustly enriched as a result of its failure to pass along the excess surplus to plan participants and asks the Court to order BCBSD to return to plan participants this surplus. The elements of unjust enrichment are (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a legal remedy. Bakerman v. Sidney Frank Importing Co., 2006 WL 2987020, at *18 (Del.Ch. Oct. 10, 2006).
Plaintiff's claim must fail because he has pled the existence of a binding and enforceable contract between Plaintiff and BCBSD.
Courts developed unjust enrichment as a theory of recovery to remedy the absence of a formal contract. Therefore, claims of unjust enrichment may survive a motion to dismiss when the validity of the contract is in doubt or uncertain. When the complaint alleges an express, enforceable contract that controls the parties' relationship, however, a claim for unjust enrichment will be dismissed.Id. The Supreme Court has explicitly held the relationship between BCBSD and Plaintiff is a contractual one. The validity of that contract has not been attacked. Assuming, arguendo, that the validity had been attacked, Plaintiff has, for the reasons described with particularity above, also failed to adequately plead the second element of the claim: that is, Plaintiff has not shown that BCBSD's retention of a surplus has impoverished him. Plaintiff entered into an insurance contract with known benefits and known costs. He now wants the Court to reduce his contract costs. Unjust enrichment is not applicable to these facts.
4. Consumer Fraud Act
To establish a claim under the Consumer Fraud Act ("CFA"), a plaintiff must prove:
[t]he act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression, or omission of any material fact with the intent that others rely upon such concealment, suppression or omission, in connection with the sale, lease or advertisement of any merchandise, whether or not any person has in fact been misled, deceived or damaged thereby.
6 Del. C. § 2513(a). Though the elements of CFA violation are distinct from those of common law fraud, both require "the making of a false or misleading statement or the concealment, suppression or omission of information, thereby creating a condition of falseness." State v. Publishers Clearing House, 787 A.2d 111, 116 (Del.Ch. 2001) (internal quotation marks and citations omitted). Plaintiff alleges he was induced into buying health insurance coverage from BCBSD due to the corporation's representation that it is a non-profit organization. Because BCBSD has been "hoardin g" a surplus, Plaintiff submits, the fact that BCBSD holds itself out as a non-profit is a false pretense or an act of deception.
Plaintiff has not provided the Court any basis to support an allegation of false pretense or deception. The surplus is known to the government regulators and is a matter of record. Plaintiff does not accuse BCBSD of hiding the surplus or of improper accounting. The Court cannot locate any authority for the proposition that a fact which is openly recognized may support a claim based on misrepresentation or deception. For that reason, this claim also fails to survive a Superior Court Civil Rule 12(b)(6) motion to dismiss. In so holding, however, the Court explicitly limits this opinion to the facts before it. The Court does not hold that an insurance company, under different circumstances, may not commit unfair trade practices and not be held accountable under Delaware's consumer protection laws.
5. Negligent Misrepresentation
Finally, BCBSD attacks Plaintiff's claim that it engaged in negligent misrepresentation. "To assert a claim for negligent misrepresentation, the following elements must be present: (1) a pecuniary duty to provide accurate information, (2) the supplying of false information, (3) failure to exercise reasonable care in obtaining or communicating information, and (4) a pecuniary loss caused by justifiable reliance upon the false information." Atwell v. RHIS, 2006 WL 2686532 (Del.Super. Aug. 18, 2006). Plaintiff argues BCBSD is accumulating and hoarding a surplus while holding itself out as a non-profit organization and urges the Court to consider this act the "supplying of false information" element of negligent misrepresentation. As stated above, the existence of a surplus is a matter of record. Plaintiff has not accused BCBSD of attempting to hide the surplus. The allegations contained in the Amended Complaint are simply inadequate to support this claim.
Conclusion
For the reasons stated herein, BCBSD's Motion to Dismiss Plaintiff's Excessive Surpl us Claims is granted with respect to the breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, violation of the Consumer Fraud Act, and negligent or other misrepresentation claims. Those claims will proceed under the as-yet unchallenged allegations that BCBSD received rebates and other price reductions from health care providers.