BLUE CROSS AND BLUE SHIELD OF KANSAS INC., ) Plaintiff, ) ) vs. ) Case No. 97CV 608 ) CARLA STOVALL KANSAS ATTORNEY GENERAL, ) Defendant. ) ) _____________________________________________)
Blue Cross and Blue Shield of Kansas, Inc. (BCBSK) filed a motion to clarify and amend this court's Memorandum Decision and Order granting the Attorney General of Kansas's (AG's) Motion for Summary Judgment.
In the court's order on pages 22 and 23, the court ruled as follows: "... Because the statutes were repealed in 1969, it was then that BCBSK ceased being a charitable corporation, and thus, it was at that time that the assets held by BCBSK were impressed with a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." BCBSK requests that the court clarify the meaning of the phrase "equivalent of those assets." BCBSK suggests that the court may have meant the predecessor corporations' surplus/reserves as of December 31, 1969, that remained after liabilities or alternatively that the court may have meant only those assets which arose by operation of K.S.A. 40-1810 and K.S.A. 40-1910, ie. the value of the property tax exemptions received by the predecessor corporations. The AG and Insurance Commissioner argue that the court said "assets" and therefore the court intended "assets" rather than "surplus."
However, the court in its ruling, in fact, did intend "net assets" rather than simply "assets." If the predecessor corporations had qualified for an exemption under 501(c)(3) of the internal revenue code of 1954 as amended (26 U.S.C. § 501(C)(3)), pursuant to K.S.A. 17-6805a the corporation upon dissolution would be required to dispose of all assets (after paying all the liabilities of the corporation) in accordance with the purpose of the corporation or to some other 501(c)(3) organization. While K.S.A. 17-6805a doesn't apply to the predecessor corporations because they were exempt under 501(c)(4) rather than 501(c)(3), the same procedure for disposing of assets should be followed. Under K.S.A. 17-6805a, "assets" to be disposed of are "assets" that remain after all the liabilities of the corporation are paid. Therefore, the court in referring to the "equivalent of those assets" intended that assets would be net assets after all liabilities of the corporation are paid.
BCBSK further requests that this court clarify its order by inserting the amount of assets subject to the charitable trust. BCBSK notes that BCBSK requested in its pretrial motion of January 6, 2000, that the court take judicial notice pursuant to K.S.A. 60-409 of Plaintiff's Exhibit 520 (the annual report filed by Kansas Hospital Service Association (KHSA) with the Insurance Department for the year ending 12/31/69 as required by K.S.A. 40-225) and Exhibit 543 (the annual report filed by Kansas Physicians Service (KPS) with the Insurance Department for the year ending 12/31/69, also as required by K.S.A. 40-225). In addition, BCBSK asked the court to take judicial notice of Plaintiff's Exhibit 501 (Report of Examination of the Kansas Hospital Service Association, Inc. of Topeka as of December 31, 1970 and Report of Examination of Kansas Physicians' Service of Topeka, Kansas as of December 31, 1970). These reports are dated August 20, 1971, and were conducted by the Kansas Insurance Department as required by K.S.A. 40-222a. These examinations covered the period from December 31, 1966 through December 31, 1970. BCBSK argues that the court has these exhibits as evidence and can use them to value the predecessor corporations as of December 31, 1969.
The AG, however, disputes that the court has any Reports of Examination in front of it as evidence (Footnote 5, page 5 of the AG's Response to BCBSK's Motion to Clarify and Amend). The AG, in addition, argues that BCBSK relies on "admitted assets" which do not include all assets and in footnote 3 of her response points out that BCBSK is understating its surplus.
Certainly, at the time that the Motions for Summary Judgment were filed, this court did not have before it the exhibits referred to by BCBSK. The pretrial motion for judicial notice was filed on January 6, 2000, which was one day prior to the filing of the court's memorandum decision and order on January 7, 2000. Neither the AG nor the Insurance Commissioner has responded to the Motion for Judicial Review nor has it been ruled on by the court. Due to the court's granting of the AG's motion for summary judgment, the consensus of the parties at the hearing on January 11, 2000, was that the full trial wasn't necessary due to the court's ruling and the court assumed that all pretrial motions were either moot or would be held in abeyance until the court ruled on BCBSK's motion to clarify and amend and BCBSK's motion to reconsider.
While this court does believe that it has in its possession all of the information necessary to make a determination of the net assets of the corporation, that information is not technically in evidence before the court. In addition, it appears that the amount of assets that BCBSK argues that the predecessor corporations had as of December 31, 1969, is controverted by the AG. Therefore, this court is unable at this point to make a finding as to the exact amount of the assets. However, after reviewing the motion and the responses this court does not anticipate the need for reopening discovery or appointing a master in order for the court to make a determination regarding the value of the assets of the predecessor corporations as of December 31, 1969. The court also does not find it necessary to allow BCBSK to show evidence of the financial operations and objective factors that occurred after December 31, 1969, which may have impacted or reduced the charitable assets. The court ruled that it was the "equivalent of the assets" (now clarified as net assets) as of December 31, 1969 (emphasis added). Both the AG and the Insurance Commissioner dispute the date that BCBSK (or its predecessor corporations) ceased being a charitable and benevolent corporation. In their responses, they at times substituted the date 1992 (when BCBSK became a mutual insurance company) for 1969 (the effective date of the legislation that repealed the predecessor corporations' statutory designation as charitable and benevolent corporations). This court clearly ruled that the date that assets held by BCBSK became impressed with a charitable trust was the date they ceased being a charitable corporation, ie. December 31, 1969. The date the court will use in determining the value of the assets, therefore, is December 31, 1969.
BCBSK also raises the issue of prejudgment interest. BCBSK argues that it would be contrary to Kansas law to award prejudgment interest. BCBSK cites the case of Home Bank & Trust v. Cedar Bluff Cattle Feeders, 25 Kan. App. 2d 152, 160 (1998) in which the court quoted from Miller v. Botwin, 258 Kan. 108, 119, 899 P.2d 1004 (1995), stating "[t]he general rule in Kansas is that prejudgment interest is allowable on liquidated claims. 'A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain, or when the same becomes definitely ascertainable by mathematical computation...[citations omitted.]' " BCBSK argues that the amount due has not been liquidated and won't be liquidated until the court issues this decision.
However, the AG argues that there is an exception to the rule cited above. The Kansas Supreme Court in Farmers State Bank v. Production Credit Association of St. Cloud, 243 Kan. 87, 102, 755 P.2d 518 (1988), summarized the exception:
"In Lightcap v. Mobil Oil Corporation, 221 Kan. 448, 467-69, 562 P.2d 1, cert. denied 434 U.S. 876 (1977), we held the district court has the discretion to award prejudgment interest on an unliquidated claim when the defendant has had use of the money, the plaintiff has been deprived of the use of the money, and the order is necessary to award full compensation."
Farmers State Bank affirmed the district court's award of interest but reversed the court's use of the judgment interest rate.
"The district court properly exercised its discretion in ordering interest, but it used the wrong statutory rate. The correct statutory rate was 10% per annum pursuant to K.S.A. 16-201." Farmers State Bank at 103.
In this case the rule from Lightcap also is applicable. The predecessor corporations and ultimately BCBSK have had use of the net assets of the charitable corporations since December 31, 1969. The assets have not been held in trust for the beneficiaries nor have the assets been transferred to some other charitable organization. An order of prejudgment interest is necessary and equitable to ensure that a full and fair amount is preserved for the beneficiaries.
The court, therefore, awards prejudgment interest, compounded at the statutory rate which was 6% from January 1970 through June 30, 1980, and 10% beginning July 1, 1980, until this matter is finally decided.
Finally, BCBSK requests that the court amend its order to include the findings required by K.S.A. 60-2102(b) so that application can be made to the appellate courts to review this court's decision. The court grants BCBSK's request and does amend its order by finding that the order entered by this court involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.
Both the AG and the Insurance Commissioner, in their responses to BCBSK's motion to clarify and amend, request that this court clarify that the charitable obligation of BCBSK be discharged only upon a "triggering event" which is defined more specifically in both the AG's and the Commissioner's responses. BCBSK, however, argues that the AG and the Insurance Commissioner are asking the court to "judicially legislate" the result they desire. BCBSK notes that the remedy requested by the AG and the Commissioner was introduced in the Kansas Legislature but was soundly rejected during the 1997 legislative session.
This court, as well, rejects the "triggering event" proposal set forth by the AG and the Insurance Commissioner. The court in its other Memorandum Decision of January 7, 2000, granted BCBSK's motion for partial summary judgment and ruled that BCBSK had not breached any fiduciary duty to any charitable trust. In addition, the court has not ordered that BCBSK distribute its "charitable assets" to any other entity. Instead, the court has answered the questions posed by the AG, one of which was whether BCBSK is a charity with assets impressed with a charitable trust or charitable obligations. This court ruled that BCBSK was not currently a charity but that its predecessor corporations were charitable and benevolent corporations and that the equivalent of the net assets of BCBSK's predecessor corporations as of December 31, 1969, are now impressed with a charitable trust. It is only appropriate for this court to rule on motions that are properly before the court. Fashioning a remedy which includes a triggering event is an entirely appropriate topic for settlement discussion but it is premature for this court to consider.
The AG also requests in her response that the court award her costs and fees for items set forth in K.S.A. 60-2003. The court reserves ruling on any award of costs and fees at this time.
The above constitutes this court's ruling on BCBSK's Motion to Clarify and Amend. Therefore, this order shall serve as the journal entry on the Motion to Clarify and Amend and no further journal entry is required.
IT IS SO ORDERED.
Dated this 5th day of April, 2000.
_____________________________
Nancy Parrish
Judge, Third Judicial District
Division Fourteen
I hereby certify that a copy of the above and foregoing MEMORANDUM DECISION AND ORDER was mailed this day of April , 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 & Bennett, L.L.P.
7501 N. Capital of Texas Hwy.
Building C, Suite 200
Austin, Texas 78731
_________________________________
Norma Dunnaway, Administrative Assistant