BLUE CROSS AND BLUE SHIELD    )
OF KANSAS, INC.,              )
                              )
                Plaintiff,    )
                              )
    vs.                       )    CASE NO. 97 CV 608
                              )
CARLA STOVALL,                )
KANSAS ATTORNEY GENERAL,      )
In her Official Capacity,     )
                              )
                Defendant,    )
                              )
KATHLEEN SEBELIUS, KANSAS     )
INSURANCE COMMISSIONER,       )
In her Official Capacity,     )
                              )
               Intervenor.    )
______________________________)

The parties herein, defendant Carla Stovall, Kansas Attorney General (AG), and plaintiff Blue Cross and Blue Shield of Kansas (BCBSK), each filed motions for summary judgment on October 15, 1999. BCBSK's motion for partial summary judgment is addressed in a separate memorandum decision. Plaintiff BCBSK filed their response to the AG's motion on November 5, 1999, and the AG replied on November 22, 1999. Intervenor, Kathleen Sebelius, Kansas Insurance Commissioner, filed a response to the AG's motion on November 8, 1999, and BCBSK filed a motion to strike the Commissioner's response on November 15, 1999. The Commissioner filed a response to BCBSK's motion to strike on November 29, 1999. No request for oral argument has been made and these matters are ready for ruling. The court having thoroughly reviewed the motions and memoranda, and after careful consideration, rules as set forth below.

BLUE CROSS BLUE SHIELD OF KANSAS'S MOTION TO STRIKE COMMISSIONER'S RESPONSE

The court grants the motion of BCBSK to strike the Commissioner's response. Kansas Supreme Court Rule 133 provides that a party may file a motion on the merits of the case and an adverse party may serve and file a memorandum in opposition to the motion. The Commissioner may be an adverse party to certain positions taken by the AG in this case, but the response filed to the AG's motion for summary judgment was not filed in opposition to the AG's motion for summary judgment. This court agrees with BCBSK that the timing of the Commissioner's brief in support of the AG's motion deprived BCBSK of the opportunity of responding to the Commissioner's arguments. See Illinois Bell Telephone Co. V. Federal Communications Commission, 740 F. 2d 465, 477 (7th Cir. 1984). Therefore, the court grants the motion of BCBSK to strike the commissioner's response and thus the response is stricken.

1. Defendant BCBSK has evolved over time having its roots in Blue Cross of Kansas, Inc., which was previously Kansas Hospital Service Association, Inc. (KHSA), and Kansas Blue Shield, which was previously Kansas Physicians Service (KPS). BCBSK is presently a domestic Mutual Life Insurance Company pursuant to K.S.A. § 40-501 et. seq., having been required to convert to a mutual insurance company in 1992 pursuant to the Kansas Legislature's enactment of K.S.A. § 40-19c12.

2. Previously, KHSA and KPS were incorporated as a part of a national social movement at a time when commercial health insurance was not widely available in Kansas. In response to this historical circumstance, the Kansas legislature enacted G.S. 40-1801 et seq. in 1941, known as "the mutual nonprofit hospital service corporation act," under which KHSA was incorporated.

3. Although repealed in 1969, the prior G.S. 40-1810 stated that every corporation organized under the act was "declared to be a charitable and benevolent corporation." G.S. 40-1810 (1941). Although BCBSK asserts that this is incomplete and misleading and that the integrated statute must be read in its entirety to ascertain the true meaning, the fact that G.S. 40-1810 stated such is uncontroverted.

4. The purpose of the KHSA as stated in its original articles of incorporation is:

[t]o establish, maintain and operate a non-profit hospital service plan whereby hospitalization may be provided to subscribers of such plan by any hospital with which the Corporation may contract for such hospitalization; to promote the general and social welfare of such residents of the State of Kansas as may become subscribers to the plan and to do all things necessary, proper, or convenient for the purpose of promoting, establishing, and operating, said non-profit hospital service corporation.

The above provision in the articles of incorporation was changed a month after incorporation to provide the following as its purpose:

to establish, maintain, and operate a non-profit hospital service plan whereby hospitalization may be provided to subscribers of such plan by any hospital with which the Association may contract for such hospitalization.

5. KPS was incorporated pursuant to the 1945 legislative enactment at G.S. 40-1901 et seq. known as "the nonprofit medical service corporation act," which provided, as in "the nonprofit hospital service corporation act," that every corporation organized pursuant to the act is "declared to be a charitable and benevolent corporation." This statute also was repealed in 1969.

6. The purpose of the KPS as stated in its articles of incorporation was:

to establish, maintain and operate a nonprofit medical service plan whereby medical care may be provided to subscribers of such plan by any doctor of medicine with which the corporation may contract for such medical care; to promote the general and social welfare of such residents of the State of Kansas as may become subscribers of the plan, and to do all things necessary, proper or convenient for the purpose of promoting, establishing and operating said nonprofit medical service corporation.

8. It is uncontroverted that volunteers assisted in the enrollment drives of KHSA and KPS. Additionally, these BCBSK's predecessors received such benefits as free space from businesses for enrollment drives and free advertising. Although BCBSK controverts these statements stating that the AG should have included evidence of specifics such as what businesses or organizations provided the space and advertising and when they were provided, the court finds the details as to the in-kind donations of time, advertising and office space are immaterial to the conclusive issues in this case.

9. Former employees testified that at one time, BCBSK's predecessors did not have age or health requirements, and further testimony by a former BCBSK president was that KPS provided special benefits to low-income individuals and families. BCBSK controverts this statement alleging the statement is misleading because the testimony is vague, further stating that BCBSK used other enrollment restrictions to make sure it was adequately underwriting the risks of the health insurance business, such as limiting enrollment, decreasing benefits for those who were over 65 and enforcing waiting periods. However, this allegation does not controvert the facts adduced from the testimony by the AG, but merely clarifies them. The Court does take note, however, of the clarifications, in particular the fact cited by BCBSK that the special benefit to low-income persons involved physicians who agreed not to charge the low-income people the co-payment required of others. In fact, there were two classes of coverage. Individuals under a certain income were in the "Service Classification" in which the subscriber paid no additional fee for services rendered by a physician but individuals above a certain income, "Indemnity classification," were required to pay the difference between what KPS paid under the schedule of benefits and what the physician actually charged. (Ex. 36, appendix to BCBSK memorandum in opposition to AG's motion for summary judgment.)

10. BCBSK's predecessors KHSA and KPS issued no stock and paid no dividends. In addition, until 1970 KHSA and KPS did not pay property tax. BCBSK argues these facts are misleading, stating KHSA and KPS were statutorily exempt from property tax beginning in 1942 and 1945 respectively but did not own any real property subject to tax until 1953. Again this information does not change the fact asserted by the AG, and is deemed uncontroverted by this court.

11. It is uncontroverted that at one time BCBSK's predecessors granted memberships to Kansans who were not able to secure health insurance coverage because of age, sickness or prior claims. However, BCBSK asserts that these circumstances were affected only with regard to the year 1965.

12. As of November 30, 1978, BCBSK's predecessors had never canceled a member because of age or health. This fact remains although BCBSK asserts benefits were reduced for persons over 65 during a certain time period.

13. It is uncontroverted that in 1956, 1960 and 1961, BCBSK's predecessors filed Applications for Relief from Tax Grievance. In these applications, KHSA and KPS described themselves as charitable and benevolent non-profit corporations, stated that the real property was owned and used "exclusively by the charitable and benevolent non-profit corporations" and stated that the real estate was "used exclusively for benevolent and charitable purposes." The court takes note of the historical background provided by BCBSK of judicial decisions and legislative actions that occurred after the filings. In addition BCBSK asserts, and it is uncontroverted, that after the 1969 repeal of K.S.A. 40-1810 and 40-1910 neither BCBSK nor it predecessors again asserted they were benevolent and charitable for property tax exemption purposes.

14. In 1965 KHSA and KPS filed a lawsuit in the district court of Shawnee County, ie. KHSA v. John Towle, et al., Case No. 100994 (herein Towle), to enjoin the Shawnee County tax assessor from assessing the corporations any property taxes. Both KHSA and KPS stated in the petition in the lawsuit that their real estate and personal property were actually and regularly used "for purposes which are exclusively scientific, benevolent and charitable" and for purposes specified by Article 11, Section 1 of the Kansas constitution and the provision of K.S.A. 79-201 and K.S.A. 40-1810 and K.S.A. 40-1910.

15. The AG asserts, and it is uncontroverted, that in 1965 Judge Newton E. Vickers found in Towle that BCBSK's predecessors were charitable and benevolent corporations. BCBSK notes that this decision was made pursuant to prior case law.

16. In 1983, following a pattern of Blue Cross and Blue Shield plans in other states, Blue Cross of Kansas and Blue Shield of Kansas consolidated to form BCBSK.

17. From at least 1945 through 1986, BCBSK and its predecessors were exempt from the payment of federal income tax under the prior § 101(8) of the Internal Revenue Code (current Code § 504(c)(4)). However, BCBSK states it has never been eligible nor received exemption from federal income tax pursuant to Internal Revenue Code § 501(c)(3) which is the provision applicable to charities.

18. Until July 1, 1992, the articles of incorporation of BCBSK stated the purpose for which the corporation was organized was exclusively for the purpose of the promotion of social welfare "within the meaning of the Internal Revenue Code of 1954 as amended, or the corresponding provisions of any subsequent United States Internal Revenue Law." Although BCBSK tries to controvert this statement of fact, it merely clarifies it by stating that such appeared in the BCBSK articles of incorporation from 1983-1992 during which time it received tax benefits under Code § 501(c)(4), and further notes the provision stated by the AG did not include all of the purposes of the corporation.

19. Until July 1, 1992, the articles of incorporation also provided for disposition of the assets of the corporation upon dissolution or winding up, stating the Directors shall "dispose of all of the assets of the corporation exclusively for the purposes of the corporation which are set forth in Section 501(c)(4) of the Internal Revenue Code . . . to such organization or organizations as are organized and operated exclusively for the promotion of social welfare and shall at that time qualify as an exempt organization or organizations under the provisions of the Internal Revenue Code. . . ."

However, BCBSK controverts this stated fact again merely by clarifying the time period in which such appeared in the articles of incorporation (1983-1992) and noting that after the federal income taxation exemption was rescinded, such provision was no longer needed.

20. BCBSK contends that all of its financial resources are for the benefit of its insureds. 21. The policyholders have not paid anything other than a premium for an interest in BCBSK which BCBSK explains is a function of their contract rights and the statutes governing mutual insurance companies. BCBSK states all assets of BCBSK derive from policyholders' premium payments.

22. As stated by the AG, there has never been any private investment in BCBSK or its predecessors; however, BCBSK states that although it has never raised capital by issuing stock, all its assets derive from its policyholders' premium payments.

The court notes from the outset that the AG contends for the purposes of this motion there are no controverted material facts. The standard for reviewing a motion for summary judgment has been well stated in Mitzner v. State Dept. of SRS, 257 Kan. 258, 891 P.2d 435 (1995) as follows:

The burden on the party seeking summary judgment is a strict one. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case.

Mitzner at 260.

The AG asserts summary judgment is appropriate, contending there are no controverted issues of material fact and that judgment can be entered in its favor as a matter of law on the issues of whether the AG has authority to declare that the assets of BCBSK are impressed with a charitable trust and to pursue a legal or equitable action to enforce an asserted charitable trust or obligation; whether the AG's claims are barred by laches, estoppel or a statute of limitations; and whether BCBSK is a charity with assets impressed with a charitable trust or charitable obligations.

BCBSK controverts facts as stated in the AG's brief by asserting that although some facts are true in the narrow sense, they are incomplete and misleading. The alleged incomplete or misleading statements, if true in the narrow sense, are not deemed controverted by the court. The court has taken into account the additional facts set forth by BCBSK. The court finds these additional facts, although they may serve to clarify the AG's facts, do not constitute material controverted questions of fact.

As noted by BCBSK, the question of whether the AG has the authority to assert BCBSK is a charity or impressed with a charitable trust has been decided in the affirmative by the Honorable Judge Fred Jackson in this case in a memorandum decision and order of January 16, 1998, wherein Judge Jackson stated:

It is clear that the attorney general has the authority to bring an action for enforcement of a charitable trust where the public interest is involved. It is also clear that the insurance commissioner is "supreme" in matters concerning insurance companies. However, there has not been a case in Kansas where the interrelation of the two have been discussed. As stated, the attorney general's charitable powers "are as broad as the common law unless restricted by statute." Finch at 671. There is no evidence such powers have been restricted in this case.

Memorandum Decision and Order of January 16, 1998, at p. 9.

In addition, BCBSK has conceded that the AG is not barred either by laches, estoppel or a statute of limitations from asserting BCBSK is a charity. Thus, BCBSK narrowed the issues to whether BCBSK is a charity and is impressed with a charitable trust or charitable obligations, and argues it is not.

BCBSK argues that BCBSK has never been a charity as defined by the Kansas Supreme Court; that neither the statutes nor BCBSK's articles of incorporation could be considered sufficient to deem BCBSK a charity or charitable trust subject to a cy pres proceeding (as the AG contends should take place to determine where the assets traceable to the alleged trust should go); and that BCBSK is not estopped from denying it is a charity.

The AG argues the issues to be decided are the same whether framed as a motion for summary judgment against BCBSK or decided on the counterclaim made by the AG. The essence of the AG's arguments are based on the assertion that "BCBSK's predecessors were created under statutes which declared them to be charitable and benevolent corporations and the assets of charitable and benevolent corporations are impressed with a charitable trust with all its attendant charitable obligations." AG's Motion for Summary Judgment, p. 17.

The question arises as to what is a charity as defined by law. A good starting point for analysis of this issue is the line of cases following Topeka Presbyterian Manor, Inc. v. Board of County Comm'rs, 195 Kan. 90, 402 P.2d 802 (1965), which were overruled by the Kansas Supreme Court in Lutheran Home, Inc. v. Board of County Comm'rs, 211 Kan. 270, 505 P.2d 1118 (1973). These cases clearly involve the question of the definition of a charitable or benevolent corporation or organization as it pertains to the tax exemption statutes and Art. 11 §1 of the Kansas Constitution. In Presbyterian Manor, the Kansas Supreme Court affirmed the Honorable E. Newton Vickers in an appeal from Shawnee County District Court.

Although the discussion revolved around what is charitable for ad valorem tax purposes, the court discussed the meaning of "charitable and benevolent," and said:

It has been said the word "charity," like many others, has both a lay and a legal meaning, and that in legal parlance the term has a much more extended significance than in common speech. (See 15 Am. Jur., 2d, Charities, §§ 2 & 3, pp. 7-8.)

In Black's Law Dictionary, 4th ed., we find this discussion of charity:

"It may mean or apply to:

"Accomplishment of some social interest, In re Tollinger's Estate, 349 Pa. 393, 37 A.2d 500, 501, 502 . . . Amelioration of persons in unfortunate circumstances, Second Nat. Bank v. Second Nat. Bank, 171 Md. 547, 190 A. 215, 111 A.L.R. 711 . . . Any purpose in which the public has an interest, Collins v. Yyon, Inc., 181 Va. 230, 24 S.E.2d 572, 580 . . . assistance to the needy . . . Improvement of spiritual, mental, social and physical conditions. Andrews v. Young Men's Christian Ass'n of Des Moines, 226 Iowa 374, 284 N.W. 186, 192 . . . Whatever proceeds from sense of moral duty or feeling of kindness and humanity for relief or comfort of another. Doyle v. Railroad Co., 118 Mass. 195, 198, 19 Am. Rep. 431." (pp. 296, 297.)

"Philanthropic; humane; having a desire or purpose to do good to men; intended for the conferring of benefits, rather than for gain or profit; loving others and actively desirous of their well being." (p. 201.)

In Mason v. Zimmerman, 81 Kan. 799, 106 Pac. 1005, it was stated:

"'Charity' is a gift to promote the welfare of others in need, and 'charitable,' as used in such constitutional and statutory provisions, means intended for charity, and 'benevolent' is, as used therein, entirely synonymous with 'charitable.'" (Syl. ¶ 2.)

In In re Estate of Carlson, 187 Kan. 543, 358 P.2d 669, we find this:

"A charity is broadly defined as a gift for general public use . . . Gifts for the purpose of establishing or maintaining hospitals, or like institutions for the benefit of the sick, injured, aged, infirm, or other persons in unfortunate circumstances are for a purpose recognized by the courts as charitable." (p. 546.)

Thus it may be seen that the term "charity" in a legal sense is rather a matter of description than of precise definition, and therefore each case involving a determination of that which is charitable must be decided upon its own particular facts or circumstances.

The Kansas Supreme Court held that businesses which received payment for services still could be considered charitable for ad valorem tax purposes. The Court discussed the Nuns of St. Dominic v. Younkin case at 118 Kan. 554, 235 Pac. 869, which stated that payment for services does not detract from the charitable nature of the services, further discussing out of state hospital cases where it was noted that only a small percentage did not pay for the services.

It was against this backdrop that the Honorable E. Newton Vickers found the predecessors to BCBSK, KHSA and KPS, were charitable corporations within the meaning of the tax exemption statutes. However, as noted by BCBSK, Presbyterian Manor was overruled in 1973 by the Kansas Supreme Court in Lutheran Home, where the court stated:

We also are convinced that "benevolent" as used in the constitutional and statutory provisions has the same meaning as "charitable" used in its objective sense of providing relief to those unable to help themselves. Under this definition of the word "charity" the characteristics of an organized charity are that whatever it does for others it does free of charge, or, at least, so nearly free of charge as to make the charges nominal or negligible, and that those to whom it renders help or services are those who are unable to provide themselves with what the institution provides for them, that is, they are legitimate subjects of charity.

We recognize that this construction of the word "charity" is more restrictive than the liberal construction given the term in Topeka Presbyterian Manor v. Board of County Commissioners, supra, and Evangelical Village & Bible Conference, Inc. v. Board of County Commrs.., supra. We believe, however, that such an interpretation is more fully in accord with the intent of the framers of the Kansas Constitution as expressed in article 11, section 1 and the intent of the legislature as set forth in K.S.A. 79-201. In view of the strict construction adopted here we, of necessity, overrule Topeka Presbyterian Manor v. Board of County Commissioners, supra; Evangelical Village & Bible Conference, Inc. v. Board of Count Commrs., supra, and other decisions of this court contrary to our holding here.

It is at this point that the case law in Kansas regarding what constitutes a charity changed. The Supreme Court then looked at the factual circumstances to determine whether under the current law the Lutheran Home could be deemed a charity and said:

. . . in this case we have no hesitancy in holding that the Lutheran Home is not entitled to an exemption from taxation under the charitable exemption provisions of the Kansas Constitution and K.S.A. 79-201. The nursing home here is operated essentially as it was under the predecessor corporation. It has the same manager that it had when it first opened its doors. Only the ownership of the home has changed. It is undisputed that the plaintiff corporation expects to be paid for each and every resident in the home. All of the residents either pay the established charges from personal or family funds or are welfare patients whose charges are paid from public funds. Furthermore there is nothing in the record to show that the charges of this nursing home are any less than the established charges of other nursing homes in the community.

The legislature has continued to struggle with which entities fit under the constitutional tax exemption category of Art. 11 § 1 of the Kansas Constitution ie. property used exclusively for benevolent and charitable purposes. The exempt categories under K.S.A. 79-201 et. seq. have continued to expand in the legislature's attempt to statutorily bootstrap the inclusion of various entities under the constitutional exemption.

The Kansas Court of Appeals in In re Tax Exemption Application of Presbyterian Manor, Inc., 16 Kan. App. 2d 710, 830 P.2d 60 (1992), commented on the evolution of one statute (ie. K.S.A. 79-201b) which provides exemptions for not for profit hospitals, adult care homes, private children's homes, housing for elderly and handicapped persons, and housing for elderly person. The court noted that Topeka Presbyterian Manor was overruled by Lutheran Home but that shortly thereafter the legislature enacted legislation to exempt special care housing provided by non-profit corporations. K.S.A. 79-201b. The Court of Appeals noted further that "the title of K.S.A. 79-201b does not make any mention of low income elderly. It mentions only housing for elderly persons... By mentioning only housing for the elderly in the title of 79-201b, the legislature, at least impliedly, adopted the broader concept of charity as espoused in Topeka Presbyterian Manor, 195 Kan. at 97-98." Presbyterian Manor, Inc. at 712-713. See also In re Tax Appeal of Univ. Of Kan. School of Medicine, 266 Kan. 737 (1999) for a historical review of property tax exemptions.

The AG argues that there are two different methods of analysis that Kansas courts have used in determining whether an entity is a charity or not. In cases of tax exemption, taxation is the rule and statutory and constitutional exemptions for charity are to be strictly construed. Lutheran Home, Inc. At 275. While in the construction of charitable trusts, Kansas courts have encouraged the charitable trust status. "Charitable trusts are favorites in the law and should receive liberal construction." In re Estate of Crawshaw, 249 Kan. 388, syl 3, 819 P.2d 613 (1991).

However, as the Kansas Supreme Court in Lutheran Homes opined, the definition of charity as set forth above in Mason v. Zimmerman should be applied in all future litigation in this state.

Over time, the court's resolve to use the definition of charity as set out in Lutheran Homes has waned. Recently, when a district court relied on past precedent from the Kansas Supreme Court concerning the constitutional and statutory conditions for the exemption of property in In re Tax Appeal of Univ. Of Kan. School of Medicine, 266 Kan. at 747, the district court was reversed even though the Court did not specifically overrule Lutheran Homes.

Whether BCBSK was ever a common law charity depends on when the analysis is done. Certainly, the constitution has not changed with regard to the tax exemption for charitable and benevolent entities but the statutes and case law have changed.

Property currently receiving tax exemptions under K.S.A. 79-201 et seq. (statutes that attempt to "clarify" what is charitable and benevolent) generally are non-profit corporations that meet a number of criteria including being exempt from federal income taxation pursuant to 501(c)(3) of the internal revenue code of 1986 and/or having contributions to the corporation qualify for deductions under Kansas income tax law.

This court does not find that BCBSK would fit today under any of the numerous categories of non-profit organizations eligible to receive tax exemptions as charitable and benevolent organizations. Nor does this court find that BCBSK today could be declared a charity by any court in the state for ad valorem tax exemption purposes based on the common law definition of charity. BCBSK argues that it and its predecessors, on the other hand, have not changed and thus never qualified as a charity. This court respectfully disagrees that BCBSK has not changed over the years. See Blue Cross Blue Shield of Kansas, Inc. v. Fletcher Bell, 227 Kan. 426, 431. While BCBSK would not qualify as a charity today, the answer would be less clear when reviewing the predecessor corporations in 1941 and 1945. In looking at 1941 and 1945 and the early years of the corporations, several factors listed below arguably bring KPS and KHSA under the charitable definition.

1. KPS and KHSA initially charged the same rates for all subscribers regardless of their health conditions.

2. In-kind donations were provided to the corporations in the form of service by volunteers, office space, advertising and interest free loans.

3. There was no criteria for membership unlike National Council (National Council of the Knights and Ladies of Security, 63 Kan. 808 (1901)). Anyone could join regardless of health condition and subscribers were not required to be employed.

4. Special benefits were provided to low-income subscribers.

In the early days BCBSK arguably could have met even the strict definition of charity in Lutheran Homes. The "gift from one who has to one who has not" possibly occurred in two contexts. First, KPS did provide special benefits to low income individuals and families. BCBSK argues that it wasn't KPS that provided a benefit to lower income individuals but instead it was the physicians who agreed not to charge any additional fee to lower income individuals. However, BCBSK's description of what occurred is not dissimilar to what occurs with many charities. The charity solicits donations so that they can pay for or subsidize services that they provide for needy individuals. KPS negotiated contracts with physicians who provided a partial donation of their time to lower income subscribers. Physicians may have been the parties providing the service at a lower cost but KPS created the tiered system and the opportunity for less costly health care for lower income subscribers.

Secondly, the policy of one premium cost for all regardless of health conditions was implemented initially by the predecessor corporations and provided a great benefit to high risk individuals who would not have been able to acquire traditional health insurance. High risk individuals are ones with health problems, the infirm, the disabled, or those with catastrophic illnesses.

Charity need not be limited to providing for the financially needy. It also can include the physically needy. See Andrews v. YMCA of Des Moines, 226 Iowa 374; In re Estate of Carlson, 187 Kan. 543.

It is clear that the early more charitable characteristics of KPS and KHSA disappeared or were modified as KPS and KHSA strived to be competitive with insurance companies. Although the court notes the early charitable characteristics, this court refrains from concluding as a matter of law that BCBSK's predecessor corporations were common law charities because that finding is not necessary due to the conclusions of law set forth in the next section.

The AG argues BCBSK's predecessors were organized under statutes which clearly and plainly declared such organizations to be "charitable and benevolent" corporations. As noted by the AG, the interpretation of a statute is a question of law. Todd v. Kelly, 251 Kan. 512, 515, 837 P.2d 381 (1992). "When a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should or should not be." Martindale v. Tenny, 250 Kan. 621, Syl. 2, 829 P.2d 561 (1992). In addition, as noted by BCBSK, the Kansas Supreme Court has said:

The fundamental rule of statutory construction is that the purpose and intent of the legislature governs when the intent can be ascertained from the statute. In construing statutes, the legislative intention is to be determined from a general consideration of the entire act. Effect must be given, if possible, to the entire act and every part thereof. To this end, it is the duty of the court as far as practicable, to reconcile the different provisions so as to make them consistent, harmonious, and sensible. When the legislature revises an existing law, as here, it is presumed that the legislature intended to make some change in the law as it existed prior to the amendment. Where a statute is designed to protect the public, the language must be construed in the light of the legislative intent and purpose and is entitled to broad interpretation so that its public purpose may be fully carried out.

Although the Court has reviewed the entire integrated statutes included in the acts found at K.S.A. 40-1801 et seq. and 40-1901 et seq. (formerly G.S. 40-1801 and 40-1901), as urged by BCBSK, the fact remains that such acts did provide for the organization of a corporation, which if formed pursuant to the act(s) would be "declared to be a charitable and benevolent corporation." G.S. 40-1810 (1940); G.S. 40-1910 (1945).

It cannot be controverted that BCBSK's predecessors were formed pursuant to G.S. 40-1801 et seq., and G.S. 40-1901 et seq. KHSA was formed pursuant to the "mutual nonprofit hospital service corporations act" (G.S. 40-1801 et seq.); and KPS was formed pursuant to the "nonprofit medical service corporation act" (G.S. 40-1901 et seq.). Upon being organized pursuant to these acts, BCBSK's predecessors were declared to be charitable and benevolent corporations under Kansas law at that time. Thus, BCBSK's roots and history spring from charitable and benevolent corporations. The AG argues that since BCBSK's predecessors were necessarily declared charitable and benevolent corporations upon their incorporation pursuant to K.S.A. 40-1810 and K.S.A. 40-1910 (formerly G.S. 40-1810; 40-1910), their assets belonged to a charitable corporation then, and therefore, assets currently held by BCBSK (or some portion) are now impressed with a charitable trust.

BCBSK contends that in viewing the statutes as a whole, it is clear that the legislative intent was to create tax-exempt insurance companies, not charitable trusts. While the court agrees that there is no express intent to create charitable trusts in the enabling acts, there is no clear intent to create insurance companies that have no charitable nature or purpose. As noted above, BCBSK's predecessors were unique in their nature and came at a time when the state and the country needed and attempted to foster nonprofit financial service companies so that health care might be affordable to all. While it may have been a unique creature, it has not been shown to be a legal impossibility for the legislature to create nonprofit insurance companies that were also charitable by statute. In fact, this is what the legislature did in K.S.A. 40-1801 et seq. and K.S.A. 40-1901 et seq.

As BCBSK notes, and it is unnecessary to repeat in detail here, the provisions of the enabling acts authorize the companies organized thereunder to provide such services as are provided by insurance companies, not typical charitable organizations formed solely for providing for the needy. Again, although this is an unusual creature, the fact that its powers and duties are akin to insurance companies or at least became more "insurance-like" over the years, does not result in the creation of ordinary insurance companies which the legislature did not have the authority to declare charitable. This court finds that the legislature clearly and unambiguously declared BCBSK's predecessors to be charitable and benevolent corporations, and it is not for this court to undermine the legislature's authority in this regard.

BCBSK argues that the legislature knew how to set up a charitable trust when it wanted to do so and cites the example of the Kansas State Soldiers' Home. Lehnherr vs. Feldman, 110 Kan. 115, 202 P. 624 (1921). BCBSK points out that the legislature appropriated funds for the Soldiers' Home and described specifically those who would be the Home's beneficiaries. However, the enabling statutes for KPS and KHSA were not for a state funded and state operated charity. Instead the legislature statutorily provided for organizations which met the descriptions contained within the acts to become incorporated under the acts as charitable and benevolent corporations. Unlike the Soldiers' Home which was not a corporation, the corporations contemplated by the legislature under GS 40-1801 et seq. and GS 40-1901 et seq. were private organizations with Articles of Incorporation and Bylaws which could contain additional details as to purpose and those who would benefit from the charitable corporation.

While BCBSK further argues that this provision declaring BCBSK's predecessors to be charitable and benevolent was made merely for the benefit of providing these "insurance companies" with a tax-exempt status in order provide an incentive for the much needed service these companies were to provide, this is not what the statute states. If these corporations were mischaracterized as charitable and benevolent as BCBSK argues, the tax exempt incentives that the legislature provided were clearly unconstitutional. The constitution provides only a limited number of exemptions and BCBSK fails to allege any category where KHSA or KPS would fit if they were not charitable entities. The acts of the legislature are presumed to be constitutional, and therefore this court rejects BCBSK's argument that the incentives to the predecessor companies were provided for some other unnamed and more than likely unconstitutional purpose. In addition, reading the statutes as a whole does not result in the conclusion that the statutes were only "tax exemption statutes." They are clearly enabling statutes with the additional provision that the companies be declared charitable and benevolent. This conclusion cannot be avoided. Most importantly, BCBSK and its predecessors knew what the statutes entailed, voluntarily organized under such statutes, and knew they were entitled to certain tax benefits from the provision declaring them to be charitable and benevolent corporations. They took advantage of these benefits, clearly holding themselves out as charitable and benevolent corporations in order to gain such benefits. This was easy to do, because the enabling acts were clear in their declaration that the corporations were charitable.

While K.S.A. 40-1810 stated "[e]very corporation organized under the provisions of this act is hereby declared to be a charitable and benevolent corporation," K.S.A. 40-1910 states:

Every corporation organized under the provisions of this act is hereby declared to be a charitable and benevolent corporation, and its funds and property shall be exempt from taxation and shall be subject to visitation by the state and the equitable jurisdiction of the courts to the same extent as other public charities.

G.S. 40-1910 (1945).

BCBSK argues that these statutes restrictively and narrowly provided that its predecessors were declared to be charitable and benevolent only for tax purposes. This is not the clear and unambiguous intent of the statute, even viewing the statute as a whole. In fact, in light of the language that such corporation "shall be subject to . . . the equitable jurisdiction of the courts to the same extent as other public charities," it was clearly not the intent to provide BCBSK's predecessors with the narrow and restrictive status of "charitable and benevolent" as offered by BCBSK. In fact, there is no evidence such a form of "charity" exists.

As a part of their argument that Kansas only meant to declare KPS and KHSA charitable for tax purposes, BCBSK claims that the Kansas Legislature must be presumed to have known the Kansas had defined "charity" as requiring a gift of some sort. While this court believes that a presumption that the Kansas Legislature as a whole is knowledgeable about Kansas case law is a giant leap of faith, such a presumption also could dilute BCBSK's argument. A legislature knowledgeable about the case law would have had to determine that corporations organized under GS 40-1801 et seq. and GS 40-1901 et seq. were very different from National Council of the Knights and Ladies of Security, (63 Kan. 808 (1901)) and their purposes. The Supreme Court had found National Council was not charitable and benevolent due to their policy of limiting membership to individuals who were employed and healthy. Although some aspects of BCBSK's form may be akin to the Lutheran Home or the National Council of Knights and Ladies of Security, such as the payment of fees in return for a service, one major difference stands out - the clear and unambiguous declaration by the legislature that corporations organized under GS 40-1801 et seq. and GS 40-1901 et seq. were "charitable and benevolent." For this reason, the court finds BCBSK's predecessors were "charitable and benevolent" organizations at one time, and thus, there were charitable assets being held by them in a charitable trust.

When prior G.S. 40-1810 and G.S. 40-1910 were repealed, the obligations of BCBSK were not wiped away in one fell swoop. As noted by the AG, K.S.A. 77-201 states that the repeal of a statute does not "affect any right which accrued, any duty imposed, any penalty incurred or any proceeding commenced, under or by virtue of the statute repealed." As stated by the AG (and this court agrees) the repeal of K.S.A. 40-1810 and K.S.A. 40-1910 did not change the nature of the corporate assets. They were impressed with a charitable trust as part of a charitable corporation. These assets were not and could not be turned into private resources by the legislative action. To allow such a result would be to subvert the intention of the legislature in providing for the unique creature of statute which it did and to which BCBSK and its predecessors took full advantage.

The only question remaining is what assets are now impressed with a charitable trust. Because this court has found that BCBSK would not and could not be considered a charity today under current common law, current statutory law or under the constitution, it cannot be found that all assets held by BCBSK today are impressed with a charitable trust.

Since the court has found that it is by the clear and unambiguous language of the enabling acts that BCBSK and its predecessors were charitable and benevolent corporations, it was by the repeal of those acts that BCBSK lost its charitable and benevolent status. Consequently, or perhaps coincidentally, this is when BCBSK stopped asserting for tax purposes that it was a charitable and benevolent organization. Although BCBSK asserts a sort of quid pro quo theory for the proposition that whatever benefits it received in tax exemptions, it has benefited the State of Kansas equally in providing the State what it needed at a time it was needed most - affordable health care for all - and that BCBSK is now square with the State. However, this is a mere conclusion hoped for by BCBSK without any support, and the creation of a charitable corporation by the legislature was not a mere provision of tax exempt status used as an incentive to such companies. The fact that BCBSK received tax exemptions over the years is not the issue. Instead at issue are the assets which are now impressed with a charitable trust. Because the statutes were repealed in 1969, it was then that BCBSK ceased being a charitable corporation, and thus, it was at that time that the assets held by BCBSK were impressed with a charitable trust. It is the equivalent of those assets now which are impressed with a charitable trust.

For the above stated reasons, the Attorney General's Motion for Summary Judgment is granted. The foregoing shall serve as the journal entry of judgment in this matter. No further journal entry is required.

IT IS SO ORDERED.

Dated this 7th day of January, 2000.

 
___________________________________
Nancy E. Parrish
District Judge

I hereby certify that a copy of the above and foregoing MEMORANDUM DECISION AND ORDER was mailed this day of January , 2000, to the following:

 
Mark A. Buck
Fairchild, Haney & Buck P.A.
5851 SW 29th St., Suite 1
Topeka, Kansas 66614

 
William Pitsenberger
Blue Cross and Blue Shield of Kansas, Inc.
1133 SW Topeka Blvd.
Topeka, Kansas 66629

 
C. Steven Tomashefsky
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611

 
Robert T. Stephan
14243 W. 84th Terrace
Lenexa, Kansas 66215

 
Robert F. Rowe, Jr.
Nancy S. Anstaett
8675 W. 96th St., Suite 210
P.O. Box 12728
Overland Park, Kansas 66282-2728

 
Eliehue Brunson
Assistant Attorney General
Office of the Attorney General
120 SW 10th Avenue, 2nd Floor
Topeka, Kansas 66612-1597

 
Margaret Gatewood
Kansas Insurance Department
420 SW 9th Street
Topeka, Kansas 66612-1678

 
Patrick H. Cantilo
Cantilo, Maisel & Hubbard, L.L.P.
111 Congress Ave., Suite 1700
Austin, Texas 78701

 
_____________________________
Norma Dunnaway, Administrative Assistant