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Case 1:08-cv-00715-SAS-TSH Document 32 Filed 09/28/09 Page 1 of 58
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT CINCINNATI
RONALD D. MELL, SR., et al., ) CASE NO. 1:08-cv-00715
)
On Behalf of Themselves and All ) JUDGE S. ARTHUR SPIEGEL
Others Similarly Situated, )
)
Plaintiffs, )
)
vs.
)
CITY OF CINCINNATI, OHIO, et al., )
)
Defendants. )
THE WELLPOINT DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, Defendants WellPoint, Inc.,
Anthem Insurance Companies, Inc., and Community Insurance Company (together, the
“WellPoint Defendants”) respectfully move the Court for summary judgment in their favor and
against plaintiffs as to all twelve claims asserted against them in the Complaint – Counts One,
Two, Three, Four, Five, Eight, Nine, Ten, Twelve, Fourteen, Fifteen and Seventeen. There is no
genuine issue of material fact, and the WellPoint Defendants are entitled to a judgment as a
matter of law for the following reasons:
The regulatory approvals obtained in 1995 and 2001 bar all of plaintiffs’ claims;
Plaintiffs cannot establish any breach of the merger agreement, the plan and joint
agreement of merger or the group guaranty policy/membership certificate
(Counts Eight, Nine and Ten);
Third parties like plaintiffs have no right to sue for an alleged breach of the
merger agreement (Count Ten);
Plaintiffs have no standing to pursue claims based upon contracts that never
existed (Counts One, Two, Three and Four);
Third parties like plaintiffs have no right to sue for an alleged breach of Anthem
Insurance’s Plan of Conversion (Count Five);
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Plaintiffs’ tort and secondary liability claims are time-barred (Counts Twelve,
Fourteen, Fifteen and Seventeen);
Even if not time-barred, plaintiffs cannot prove the elements of their claims for
breach of fiduciary duty (Count Fifteen), aiding and abetting (Counts Twelve and
Fourteen) or fraud (Count Seventeen).
These matters are addressed more fully in the accompanying memorandum in support
and appendix.
Respectfully submitted,
BAKER & DANIELS LLP
s/ Paul A. Wolfla
Christopher G. Scanlon (pro hac vice)
Paul A. Wolfla (0069801)
Anne K. Ricchiuto (pro hac vice)
300 N. Meridian Street, Suite 2700
Indianapolis, IN 46204
Telephone: (317) 237-0300
Facsimile: (317) 237-1000
chris.scanlon@bakerd.com
paul.wolfla@bakerd.com
anne.ricchiuto@bakerd.com
Glenn V. Whitaker (0018169) Trial Attorney
Kent A. Britt (0068182)
Vorys, Sater, Seymour and Pease LLP
Suite 2000, Atrium Two
221 East Fourth Street
Cincinnati, OH 45202
Tel: (513) 723-4000
gvwhitaker@vorys.com
kabritt@vorys.com
Robert N. Webner (0029984)
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, OH 43216
Tel: (614) 464-6400
rnwebner@vorys.com
Attorneys for Defendants Anthem Insurance
Companies, Inc., WellPoint, Inc., and Community
Insurance Company
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ......................................................................................................... iv
LOCAL RULE 7.2(a)(3) SUMMARY OF ARGUMENTS AND AUTHORITIES ................... viii
MEMORANDUM IN SUPPORT OF THE WELLPOINT DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT ..............................................................................................................1
I. INTRODUCTION ...............................................................................................................1
II. UNDISPUTED FACTS .......................................................................................................2
A. CMIC Was An Ohio Mutual Insurance Company; CMIC’s By-Laws Defined
Who Its Members Were. ..........................................................................................2
B. The Merger Agreement Explained Who Would Become A Member Of Anthem
Insurance As A Result Of The Merger. ...................................................................3
C. The Ohio Department of Insurance Approved The Merger And The Merging
Parties’ Treatment Of Group Policyholders. ...........................................................6
D. The City’s Group Contracting History Shows That The City Became A Member
Of Anthem Insurance As A Result Of The Merger And Maintained Its
Membership Through The Renewal Or Replacement Of Its Group Contracts. ......8
E. Anthem Insurance’s Demutualization Entitled Its Eligible Statutory Members to
a Distribution of Cash or Stock. .............................................................................10
F. In 2001, Anthem Insurance Informed The Ohio Department That “Grandfathered
Groups” – Not The Employees Or Retirees Eligible For Benefits Under Those
Groups’ Contracts – Would Receive A Distribution In Connection With The
Demutualization. ....................................................................................................12
G. Anthem Issued Stock To the City As A Result Of The Demutualization. ............13
I. SUMMARY OF CLAIMS.................................................................................................13
II. ARGUMENT .....................................................................................................................15
A. Plaintiffs Cannot Collaterally Attack The Indiana Department’s Findings And
Conclusions. ...........................................................................................................15
B. Counts Eight, Nine and Ten For Breach Of Contract (the Ohio Law Claims)
Fundamentally Misconstrue The Relevant Agreements. .......................................19
1. The Merger Documents clearly provide that holders of group policies like
the City, not their employees or retirees, were members of CMIC and
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would become members of associated with attendant voting and equity
rights. .........................................................................................................19
2. Although the language of the Merger Documents is clear and there is no
need to resort to extrinsic evidence, that evidence is one-sided and lends
no support to plaintiffs’ Ohio Law Claims. ...............................................21
C. Plaintiffs’ Arguments About The Ohio Demutualization Law Are Unavailing. ...23
1. The Court should never reach the Ohio demutualization law....................23
2. The Merger Agreement does not look to Ohio law to determine who
would receive equity rights in Anthem Insurance post-merger. ................24
3. In any event, plaintiffs misconstrue the Ohio Demutualization Statute;
even if it applied, the shares were properly issued to the City. .................25
D. The “New Contract Claims” Fail for Multiple Reasons. .......................................30
1. The plaintiffs do not have standing to pursue the “New Contract
Claims.” .....................................................................................................30
2. The “New Contract Claims” have no factual basis. ...................................32
a. There is no evidence that the City was issued a Guaranty Policy
for Future Groups. ..........................................................................32
b. Plaintiffs’ unsupported assertion that Ms. Wilmes received a
Certificate of Membership contradicts their own theory of the
case. ................................................................................................33
E. Plaintiffs Were Not Third Party Beneficiaries of Anthem Insurance’s Plan of
Conversion. ............................................................................................................35
F. All Of the Tort Claims Are Time-Barred. .............................................................35
G. Even If Deemed Timely, The Tort Claims Have No Merit. ..................................38
1. Count Fifteen for breach of fiduciary duty should be dismissed because
Anthem Insurance did not owe plaintiffs any duty, fiduciary or otherwise,
regarding the demutualization....................................................................38
2. Count Seventeen for concealment/fraud is defective.................................40
3. The aiding and abetting claims fail because there are no underlying torts;
moreover, plaintiffs cannot come forward with evidence to support these
claims. ........................................................................................................42
III. CONCLUSION ..................................................................................................................43
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CERTIFICATE OF SERVICE ......................................................................................................45
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TABLE OF AUTHORITIES
Cases
Advanced Ground Sys. Eng’g, Inc. v. RTW Indus., Inc.,
388 F.3d 1036 (7th Cir. 2004) .................................................................................................. 21
Aetna Cas. & Sur. Co. v. Leahey Constr. Co.,
219 F.3d 519 (6th Cir. 2000) .................................................................................................... 42
Akron Mgmt. Corp. v. Zaino,
760 N.E.2d 405 (Ohio 2002) .................................................................................................... 27
Am. Home Prod. Corp. v. Liberty Mut. Ins. Co.,
565 F. Supp. 1485 (S.D.N.Y. 1983) ......................................................................................... 22
Bankamerica Corp. v. United States,
462 U.S. 122 (1983) .................................................................................................................. 27
Blon v. Bank One,
519 N.E.2d 363 (Ohio 1988) .................................................................................................... 39
Booneville Convalescent Ctr., Inc. v. Cloverleaf Heathcare Servs., Inc.,
834 N.E.2d 1116 (Ind. Ct. App. 2005) ..................................................................................... 20
Cincinnati Ins. Co. v. ACE INA Holdings, Inc.,
875 N.E.2d 31 (Ohio Ct. App. 2007) ................................................................................... ix, 22
Clark Mut. Life Ins. Co. v. Lewis,
217 N.E.2d 853 (Ind. Ct. App. 1966) .................................................................................. ix, 22
Cleveland Indus. Square, Inc. v. Dzina,
2006 WL 562146 (Ohio Ct. App. Mar. 9, 2006) ............................................................ x, 36, 37
Cleveland Mobile Radio Sales, Inc. v. Verizon Wireless,
865 N.E.2d 1275 (Ohio 2007) .................................................................................................. 27
Dana Corp. v. Blue Cross & Blue Shield Mut. of N. Ohio, et al.,
1988 WL 156334 (N.D. Ohio Nov. 30, 1988) ..................................................................... xi, 41
Daniels v. Bursey,
2003 WL 22053580 (N.D. Ill. Sept. 3, 2003) ............................................................... 39, 40, 43
Dolan v. United States Postal Serv.,
546 U.S. 481 (2006) .................................................................................................................. 27
Dougherty v. Carver Fed. Sav. Bank,
112 F.3d 613 (2nd Cir. 1997) ................................................................................................... 17
Evan v. Poe & Assocs., Inc.,
873 N.E.2d 92 (Ind. Ct. App. 2007) .................................................................................. viii, 20
Farr v. Pinkerton,
1994 WL 462151 (6th Cir. Aug. 25, 1994) .............................................................................. 34
iv
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FDA v. Brown & Williamson Tobacco Corp.,
29 U.S. 120 (2000) .................................................................................................................... 27
Federated Mgmt. Co. v. Coopers & Lybrand,
738 N.E.2d 842 (Ohio Ct. App. 2000) ................................................................................. xi, 42
Fiala v. Metro. Life Ins. Co.,
6 A.D.3d 320 (N.Y. App. 2004) ............................................................................................... 19
First Nat. Bank & Trust v. Indianapolis Pub. Hous. Agency,
864 N.E.2d 340 (Ind. Ct. App. 2007) ................................................................................ viii, 19
Foster Wheeler Enviresponse, Inc. v. Franklin County Convention Facilities Auth.,
678 N.E.2d 519 (Ohio 1997) .................................................................................................... 19
GEICO Ins. Co. v. Rowell,
705 N.E.2d 476 (Ind. Ct. App. 1999) ....................................................................................... 20
Graham v. American Cyanamid Co.,
350 F.3d 496 (6th Cir. 2003) .................................................................................................... 40
Great Cent. Ins. Co. v. Tobias,
524 N.E.2d 168 (Ohio 1988) ............................................................................................... xi, 43
Greathouse v. City of E. Liverpool,
823 N.E.2d 539 (Ohio Ct. App. 2004) ................................................................................. ix, 30
Hardin v. Reliance Trust Co.,
2006 WL 2850455 (N.D. Ohio Sept. 29, 2006) ........................................................................ 38
Helman v. EPL Prolong, Inc.,
743 N.E.2d 484 (Ohio Ct. App. 2000) ...................................................................................... 37
Herbert v. Banc One Brokerage Corp.,
638 N.E.2d 161 (Ohio Ct. App. 1994) ...................................................................................... 37
In re Termination of Employment of Pratt,
321 N.E. 2d 603 (Ohio 1974) ................................................................................................... 39
Indiana Gaming Co., L.P. v. Blevins,
724 N.E.2d 274 (Ind. Ct. App. 2000) ....................................................................................... 21
Indianapolis Water Co. v. Boone Cir. Ct.,
307 N.E.2d 870 (Ind. 1974) ............................................................................................... viii, 18
Investors REIT One v. Jacobs,
546 N.E.2d 206 (Ohio 1989) .................................................................................................... 37
Johnston v. Cochran,
2007 WL 2421821 (Ohio Ct. App. Aug. 28, 2007) .................................................................. 21
Kazmaier Supermarket, Inc. v. Toledo Edison Co.,
573 N.E. 2d 655 (Ohio 1991) ............................................................................................ viii, 18
Keisler v. FirstEnergy Corp.,
2006 WL 259639 (Ohio Ct. App. Feb. 3, 2006) ................................................................... x, 36
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Kimble Mixer Co. v. Hall,
2005 WL 435148 (Ohio Ct. App. Feb. 22, 2005) ................................................................ xi, 43
Kotyk v. Rebovich,
621 N.E.2d 897 (Ohio Ct. App. 1993) ...................................................................................... 21
Lin v. Gatehouse Constr. Co.,
616 N.E.2d 519 (Ohio Ct. App. 1992) ................................................................................. xi, 42
Louisiana Power and Light Co. v. United Gas Pipe Line Co.,
642 F. Supp. 781 (E.D. La. 1986) ............................................................................................. 41
Nat’l Ass’n of Home Builders v. Defenders of Wildlife,
551 U.S. 644 (2007) .................................................................................................................. 27
Ordower v. Office of Thrift Supervision,
999 F.2d 1183 (7th Cir. 1993) ..................................................................................... viii, 17, 18
Pavlovich v. Nat’l City Bank,
435 F.3d 560 (6th Cir. 2006) .................................................................................................... 42
Reschini v. First Fed. S&L Ass’n of Indiana,
46 F.3d 246 (3rd Cir. 1995) ...................................................................................................... 17
Salcedo v. Toepp,
696 N.E.2d 426 (Ind. Ct. App. 1998) ....................................................................................... 20
Shaver v. Standard Oil Co.,
623 N.E. 2d 602 (Ohio Ct. App. 1993) ..................................................................................... 39
Shifrin v. Forest City Enters.,
597 N.E.2d 499 (Ohio 1992) ............................................................................................. viii, 19
Smith v. Transworld Sys., Inc.,
953 F.2d 1025 (6th Cir. 1992) .................................................................................................. 34
Stapp, et al. v. Broadwing, Inc., et al.,
2009 WL 530100 (S.D. Ohio Feb. 27, 2009) ....................................................................... x, 31
State ex rel. Clark v. Great Lakes Constr. Co.,
791 N.E.2d 974 (Ohio 2003) .................................................................................................... 27
State ex rel. Crabbe v. Middletown Hydraulic Co.,
151 N.E. 653 (Ohio 1926) ........................................................................................................ 28
Steinfels v. Ohio Dept. of Commerce, Div. of Securities,
719 N.E.2d 76 (Ohio Ct. App. 1998) ......................................................................................... xi
Strock v. Pressnell,
527 N.E.2d 1235 (Ohio 1988) ............................................................................................. xi, 39
Tierney v. John Hancock Mut. Life Ins. Co.,
791 N.E.2d 925 (Mass. Ct. App. 2003) .................................................................................... 18
Zab v. Goforth,
1998 WL 598745 (Ohio Ct. App. Sept. 10, 1998) .................................................................... 21
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Statutes
15 U.S.C. 6715(3) ......................................................................................................................... 15
Ind. Code § 27-15 .................................................................................................................. viii, 10
Ind. Code § 27-15-15-1 ................................................................................................................. 18
Ind. Code § 27-15-4 ...................................................................................................................... 18
Ind. Code § 27-15-4-2 ................................................................................................................... 11
Ind. Code § 4-22-2-26 ................................................................................................................... 11
Ohio Rev. Code § 1.49.................................................................................................................. 27
Ohio Rev. Code § 3913................................................................................................................. 24
Ohio Rev. Code § 3913.22(C) ...................................................................................................... 29
Ohio Rev. Code § 3913.22(D) ...................................................................................................... 38
Ohio Rev. Code § 3923............................................................................................................ ix, 28
Ohio Rev. Code § 3941................................................................................................................. 28
Ohio Rev. Code § 3941.07............................................................................................................ 23
Ohio Rev. Code § 3941.38(A) ........................................................................................................ 4
Ohio Rev. Code § 3941.38(B)(2).................................................................................................. 23
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LOCAL RULE 7.2(a)(3) SUMMARY OF ARGUMENTS AND AUTHORITIES
Plaintiffs seek to revisit two remote and heavily regulated transactions involving mutual
insurance companies. Their fundamental complaint is that they did not receive a distribution of
value when Anthem Insurance Companies, Inc. “(Anthem Insurance”) converted from a mutual
insurance company to a stock company. The Court should enter summary judgment as a matter
of law in favor of the WellPoint Defendants for the following reasons.
A. Anthem Insurance’s Compliance With Indiana’s Demutualization Statute
And The Indiana Regulator’s Explicit Approval Of Stock Distributions To
Employers In Ohio (like the City) Bars Plaintiffs’ Claims. (p. 15)
Demutualizations of Indiana mutual insurers are governed by Indiana statute and
regulated by the Indiana Department of Insurance (the “Indiana Department”).
Ind. Code § 27-15. Following a lengthy review period and a public hearing in
2001, the Indiana Department approved the demutualization of Anthem
Insurance. The Indiana Department’s October 25, 2001 Order is explicit in its
approval of the distribution of stock to employers in Ohio, which plaintiffs seek to
challenge here. The law does not permit this collateral attack on that approval or
actions taken in conformity with it. Ordower v. Office of Thrift Supervision, 999
F.2d 1183 (7th Cir. 1993); Kazmaier Supermarket, Inc. v. Toledo Edison Co., 573
N.E. 2d 655, 659-60 (Ohio 1991); Indianapolis Water Co. v. Boone Cir. Ct., 307
N.E.2d 870, 872-73 (Ind. 1974).
B. No Contract Gave Plaintiffs Equity Rights In Anthem Insurance And,
Therefore, No Contract Was Breached When Plaintiffs Did Not Receive A
Distribution Of The Actuarial Value Of Anthem Insurance At The Time Of
Its Demutualization. (p. 19)
1. The relevant contracts provide that group policyholders were
members of Anthem Insurance. (p. 19)
All three agreements that plaintiffs allege were breached make clear that group
policyholders (like the City) are the mutual members with rights in the event of a
demutualization of Anthem Insurance and that individuals like plaintiffs have no
such rights. “When the language of a contract is clear and unambiguous, the
intent of the parties is determined from the four corners of the instrument.” First
Nat. Bank & Trust v. Indianapolis Pub. Hous. Agency, 864 N.E.2d 340, 350 (Ind.
Ct. App. 2007); Shifrin v. Forest City Enters., 597 N.E.2d 499, 501 (Ohio 1992).
When reading a contract, the Court should look at the entire contract, not isolate
provisions from the context of the whole. Evan v. Poe & Assocs., Inc., 873
N.E.2d 92, 98 (Ind. Ct. App. 2007). The plain language of the agreements and
related documents defeats plaintiffs’ claims.
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2. The extrinsic evidence also contradicts plaintiffs’ claims. (p. 21)
Plaintiffs’ contentions regarding a purported breach of contract should be rejected
because they are inconsistent with what the parties said and did at the time of the
relevant merger and thereafter, and at odds with the actions and understandings of
the Ohio Department of Insurance in approving that merger. Clark Mut. Life Ins.
Co. v. Lewis, 217 N.E.2d 853, 857 (Ind. Ct. App. 1966); Cincinnati Ins. Co. v.
ACE INA Holdings, Inc., 886 N.E.2d 876, 883 (Ohio Ct. App. 2007).
C. Ohio Demutualization Law Does Not Save Plaintiffs’ Claims Because It Does
Not Apply To The Transaction. (p. 23)
1. The Court should never reach the Ohio demutualization law. (p. 23)
At the time of the demutualization, Anthem Insurance was an Indiana mutual
insurance company and its demutualization was governed by Indiana’s
demutualization law.
2. The Merger Agreement does not look to Ohio law to determine who
would receive equity rights in Anthem Insurance post-merger. (p. 24)
The Merger Agreement does not say that Ohio law should be consulted to
determine who would receive equity rights in Anthem Insurance; does not say
anything about conferring rights upon people like plaintiffs – certificate holders
under group contracts; and does not say that a possible conversion of Anthem
Insurance from an Indiana mutual company to an Indiana stock company would
be governed by Ohio law.
3. Even if the Ohio Demutualization Law Applied, the Shares Were
Properly Issued To The City. (p. 25)
The Ohio Demutualization Law states that if a mutual insurance company
converts into a stock insurance company, “each mutual policyholder is entitled to
such shares of stock of the new corporation as his equitable share of the value of
the mutual company will purchase.” R.C. § 3913.22(A). Plaintiffs have come
forward with no evidence indicating that they or any other employee or retiree of
the City was “named as the insured” under the group contracts held by the City,
such that plaintiffs could qualify as the “Policyholder” within the meaning the
relevant provision of the demutualization law. R.C. § 3913.20(B).
Looking at the entire statutory scheme exposes plaintiffs’ interpretation of the
Ohio Demutualization Law as invalid. R.C. § 3923.12(C)(2); R.C. § 3913.22(C).
Furthermore, the inapplicable Ohio provisions on which plaintiffs rely dictate that
when an Ohio mutual insurance company demutualizes, shares shall be issued to
the owners of its policies. R.C. § 3913.22(C). Even if Ohio’s demutualization
law had been triggered, Anthem Insurance complied with that statute by issuing
stock to the City, the owner of the relevant group policy. Greathouse v. City of E.
Liverpool, 823 N.E.2d 539 (Ohio Ct. App. 2004).
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D. The “New Contract Claims” suffer from multiple dispositive defects. (p. 30)
1. Plaintiffs do not have standing to pursue the New Contract Claims.
(p. 30)
None of the named plaintiffs has suffered the injury-in-fact complained of
in the New Contract Claims, as required to obtain standing under
Article III of the Constitution. Stapp, et al. v. Broadwing, Inc., et al., 2009
WL 530100 (S.D. Ohio Feb. 27, 2009).
2. At any rate, the New Contract Claims have no factual basis. (p. 32)
It is beyond dispute that the City was a longstanding group customer of
CMIC at the time of the merger and continued to renew, amend or replace
its group contracts following the merger. No new contracts were executed
after the merger. Plaintiffs cannot have claims arising from contracts that
do not exist. Declaration of Andrea Schell.
E. Plaintiffs Were Not Third Party Beneficiaries Of The Plan Of Conversion.
(p. 35)
Plaintiffs, as employees of one of Anthem Insurance’s group members, have no
direct rights under the Plan, which is not even a contract. The Complaint makes
clear that only Anthem Insurance’s members had rights resulting from the
transaction described in the Plan. Plaintiffs were not members of Anthem
Insurance.
F. All Of Plaintiffs’ Tort Claims Are Time-Barred. (p. 35)
The statute of limitations applicable to claims for breach of fiduciary duty and
fraud is four years. R.C. § 2305.09; Cleveland Indus. Square, Inc. v. Dzina, 2006
WL 562146, at *9 (Ohio Ct. App. Mar. 9, 2006) (claims for breach of fiduciary
duty are governed by a four-year statute of limitations); Keisler v. FirstEnergy
Corp., 2006 WL 259639, at *4 (Ohio Ct. App. Feb. 3, 2006) (same for fraud
claims). The acts underlying these two claims took place during 2001 when
Anthem Insurance communicated with its members and the public about the
demutualization. All of this information was widely available. Plaintiffs’ tort
claims are time-barred.
G. Even If Not Time-Barred, The Tort Claims Have No Merit. (p. 38)
1. The fiduciary breach claim should be dismissed because plaintiffs
were owed no such duty. (p. 38)
Anthem Insurance did not owe plaintiffs any type of duty regarding the
demutualization. Plaintiffs had no relationship with Anthem Insurance beyond
being employees of an employer that held a group policy. No fiduciary duty
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arises from that circumstance and therefore plaintiffs cannot make a claim for
breach of such duty. Strock v. Pressnell, 527 N.E.2d 1235, 1243 (Ohio 1988).
2. Plaintiffs cannot prove the elements of fraud. (p. 40)
Plaintiffs cannot demonstrate that the WellPoint Defendants’ representations were
made falsely as required by Ohio law. The representations in question reflected
Anthem Insurance’s legitimate position on the proper interpretation of its own
membership rules and cannot give rise to a claim for fraud. Dana Corp. v. Blue
Cross & Blue Shield Mut. of N. Ohio, et al., 1988 WL 156334 (N.D. Ohio
Nov. 30, 1988). Moreover, statements to third parties cannot provide a basis for
plaintiffs to argue that they justifiably relied on those statements or were injured
by those statements. Lin v. Gatehouse Constr. Co., 616 N.E.2d 519 (Ohio Ct.
App. 1992). Finally, the WellPoint Defendants owed no contractual, fiduciary or
other duty to plaintiffs that would have required them to provide any information
to plaintiffs regarding the demutualization transaction. In Ohio, “when an
allegation of fraud is based on nondisclosure, there can be no fraud absent a duty
to speak.” Steinfels v. Ohio Dept. of Commerce, Div. of Securities, 719 N.E.2d
76, 82 (Ohio Ct. App. 1998).
3. The aiding and abetting claims cannot survive without underlying
torts. (p. 42)
The Ohio Supreme Court has not recognized a cause of action for aiding and
abetting in circumstances like this. Federated Mgmt. Co. v. Coopers & Lybrand,
738 N.E.2d 842, 853 (Ohio Ct. App. 2000). But even if this cause of action exists
under Ohio law, it has no application in the absence of tortious conduct by the
principal actor. Great Cent. Ins. Co. v. Tobias, 524 N.E.2d 168, 172 (Ohio 1988).
The purported torts underlying plaintiffs’ claims for aiding and abetting are the
City’s receipt of Anthem stock, subsequent sale of that stock and retention of
stock sale proceeds. The City’s disposition of the stock that it received was
proper and does not give rise to plaintiffs’ underlying claims for conversion or
breach of fiduciary duty. Furthermore, plaintiffs cannot establish the
“knowledge” or “substantial assistance” elements for civil aiding and abetting
claims. Kimble Mixer Co. v. Hall, 2005 WL 435148 (Ohio Ct. App. Feb. 22,
2005).
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MEMORANDUM IN SUPPORT OF THE WELLPOINT
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
This lawsuit challenges the issuance of shares of stock to The City of Cincinnati (“the
City”) in connection with the 2001 conversion of Anthem Insurance Companies, Inc. (“Anthem
Insurance”) from an Indiana mutual insurance company to an Indiana stock company, a
transaction known as a “demutualization.” The Indiana statute that governed the
demutualization required Anthem Insurance to provide consideration (cash or the stock of
Anthem, Inc. (“Anthem”)) to its Eligible Statutory Members equal to the fair value of their
membership interests. The City received Anthem stock because it was an Eligible Statutory
Member of Anthem Insurance at the time of the demutualization. Plain and simple, plaintiffs
were not Eligible Statutory Members.
Over a several month period in 2001, the Indiana Department of Insurance (the “Indiana
Department”), with assistance from its expert advisors and in consultation with insurance
regulators in every state (including Ohio) where Anthem Insurance did business conducted a full
review of the proposed demutualization. During this review, the Indiana Department approved
the distribution of stock to eligible employers in Ohio – employers like the City.
This action, instituted nearly seven years after the regulatory approval of the
demutualization, is a collateral attack on that key feature of the transaction. The plaintiffs are
two City employees and the estate of a deceased City employee’s spouse. They allege that
persons who received insured health care benefits under the City’s group contracts with Anthem
Insurance’s Ohio subsidiary in 2001 should have received the demutualization-related
consideration provided to the City – all 870,021 shares of Anthem stock. They claim that they
are such persons.
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In this belated attack on the Indiana Department’s approval of stock distributions to Ohio
employers like the City, plaintiffs pursue two equally meritless alternative theories of liability.
For their first theory, plaintiffs rely on erroneous interpretations of wholly inapplicable Ohio
insurance statutes. They attempt to import their flawed interpretation of Ohio law into the terms
of a 1995 merger between Anthem Insurance and Community Mutual Insurance Company
(“CMIC”), an Ohio mutual insurance company of which the City was a member at the time of
that merger. Plaintiffs’ reading of the merger-related documents is at odds with their plain
language and the Ohio Department of Insurance’s pronouncements of Ohio law when it
approved the 1995 merger.
For their second theory, plaintiffs rely on so-called “new” group contracts that they claim
were issued to the City after October 1, 1995 and which allegedly gave the City’s employees
enrolled under those contracts membership rights in Anthem Insurance. See, Compl. ¶¶ 45-47,
78-80. These alleged contracts never existed. Because the indisputable evidence shows that the
City did not hold the alleged group contracts on which this alternative theory depends, all claims
based on this theory must be dismissed.
Plaintiffs’ claims suffer from a wide array of other case dispositive defects and,
consequently, the WellPoint Defendants are entitled to summary judgment as a matter of law.
II. UNDISPUTED FACTS
A. CMIC Was An Ohio Mutual Insurance Company; CMIC’s By-Laws Defined
Who Its Members Were.
Prior to its 1995 merger with Anthem Insurance, CMIC was a mutual insurance company
organized under the laws of Ohio with its executive offices located in Cincinnati, Ohio.
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Declaration of Raymond L. Umstead (“Umstead Decl.”) (Appx. Tab 1)1, at ¶ 3. The Regulations
and By-Laws of CMIC in effect at the time of the 1995 merger specified who the “members” of
CMIC were:
Every policyholder of the corporation, except the holder of a policy or contract of
reinsurance, is a member of the corporation while the policy is in force, and is
entitled to one vote, and no more, regardless of the amount of insurance held by
such policyholder, the number of policies in force in the name of such
policyholder or the amount of premiums paid by such policyholder. Policyholder
means the person or group of persons identified as the named insured in the
declarations page of a policy of insurance of the corporation. Membership begins
on the effective date of the policy and continues until the earlier of the termination
date, cancellation date or lapse date of the policy. In the case of a master
contract for group insurance, the member shall be the holder of the master
policy, and the holder of any certificate or contract issued subordinate to such
master policy shall not be a member unless it makes specific provision for such
membership.
Appx. Tab 1 (Umstead Decl.), Ex. A at WP-M 00002910, Article I, Section 1.01.
At the time of the 1995 merger, the City and CMIC were parties to a master group
contract that permitted the City’s employees and retirees to participate in various insured group
health care benefits. Compl. ¶¶ 41-42; Deposition of Charles Haas (“Haas Dep.”) (Appx. Tab 2),
pp. 60-61, 67-68; Declaration of Andrea Schell (“Schell Decl.”) (Appx. Tab 3) ¶¶ 3-4. As the
holder of such a contract, the City was CMIC’s member pursuant to CMIC’s By-Laws.
B. The Merger Agreement Explained Who Would Become A Member Of
Anthem Insurance As A Result Of The Merger.
On March 13, 1995, Anthem Insurance’s predecessor – Associated Insurance Companies,
Inc. – and CMIC entered into an agreement to merge (the “Merger Agreement”). Appx. Tab 1
(Umstead Decl.), ¶ 5, Ex. B. Section 3.1(B) of the Merger Agreement provided that CMIC
members would, following the merger, receive: (1) an “assumption certificate” from a new Ohio
1
The evidentiary materials cited in this brief are collected in the accompanying Appendix to the WellPoint
Defendants’ Motion for Summary Judgment. References to those materials will be to “Appx. Tab __.”
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stock insurance company called Community Insurance Company (“CIC”) providing for the same
level of health benefits secured previously through contracts with CMIC, and (2) a new Anthem
Insurance “guaranty policy” and “certificate of membership” that guaranteed the insurance
benefits then provided by CIC and gave the former CMIC members equivalent membership
interests, i.e., voting rights and equity interests, in Anthem Insurance. Id. at WP-M 00012645-
47.2
The forms of the guaranty policies/certificates of membership issued to current CMIC
members were Exhibits B-1 (for CMIC individual policyholders) and B-2 (for CMIC group
contract holders) to the Merger Agreement. Id. at WP-M 00012727-12744. Exhibit B-2 (the
“Group Guaranty Policy”), issued to group policyholders like the City, provides in relevant part
that:
… “Associated Member” means the person or entity identified above
who is a party to this Policy and the Community Contract. …
… “Community Contract” means the contract obligating Community to
provide health care benefits to Covered Persons. The Community Contract is
identified above under the “Community Contract Number” provision, which
contract Community issued to former members of The Community Mutual
Insurance Company in connection with the merger of The Community Mutual
Insurance Company and Associated, and shall include any renewal, amendment or
replacement thereof. The Community Contract is a group medical and health
benefits contract issued to the Associated Member to provide health and
medical coverage for the Associated Member’s Enrollees and the Enrollees’
dependents who are eligible to enroll and who have enrolled for medical and
health benefits.
“Covered Person” means each Enrollee and the Enrollee’s dependents who are
covered under the group Community Contract. …
… “Enrollee” means each person who has enrolled for medical and health
benefits under the Community Contract and who was eligible to enroll for such
2
In connection with the closing of the merger, CMIC and Associated executed a “Plan and Joint Agreement of
Merger,” (the “PJAM”) which is a “short form” version of the Merger Agreement that was required to be filed
with the Ohio Department of Insurance. See R.C. § 3941.38(A).
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benefits under the Community Contract because of the person’s status as an
employee of the Associated Member, if the Associated Member is an employer, or
a participant or member in the Associated Member, if the Associated Member is
any group or association other than an employer. A dependent of an Enrollee is
not an Enrollee….
ARTICLE IV – MEMBERSHIP RIGHTS
As long as this Policy is in effect, the Associated Member shall be entitled to all
of the rights of membership in Associated accorded to members of a mutual
insurance company under the Indiana Insurance Law, including the right to
one vote on all matters that come before the members of an Indiana domestic
mutual insurance company under the Indiana Insurance Law and equity rights in
the event of liquidation, merger, consolidation or demutualization as provided
in Associated’s Articles of Incorporation. Such equity rights are intended to be
equivalent to the rights which the Associated Member would have as a member
under an Associated policy if Associated, rather than Community, had issued the
Community Contract, and shall accrue solely to the Associated Member. No
Enrollee or Enrollee dependent shall receive any equity rights by virtue of being
an Enrollee or Enrollee dependent. As provided in Associated’s Articles of
Incorporation, the Associated Member’s rights shall reflect and include in full the
value of the Associated Member’s interest in The Community Mutual Insurance
Company immediately prior to the merger of The Community Mutual Insurance
Company and Associated, together with any subsequent accretions or reductions
to that value determined in accordance with Section 27-1-8-13 of the Indiana
Insurance Law, including, without limitation, those accretions or reductions in
value resulting from changes in the entire net worth of Associated on a
consolidated basis following the merger….
Appx. Tab 1 (Umstead Decl.), Ex. B at WP-M 00012736-12739. Plaintiffs were not parties to
the Group Guaranty Policy or parties to the group health benefits contract between the City and
CMIC. Plaintiffs were, or claim to be, enrollees. Pursuant to Article IV of the Group Guaranty
Policy, “no Enrollee … shall receive any equity rights by virtue of being an Enrollee.” Id. at
WP-M 00012738-12739. Those rights were granted instead to Associated Members, i.e., group
contract holders like the City, who were “entitled to all of the rights of membership” including
“equity rights in the event of … demutualization.” Id.
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C. The Ohio Department of Insurance Approved The Merger And The Merging
Parties’ Treatment Of Group Policyholders.
CMIC and Associated jointly petitioned the Ohio Department of Insurance (the “Ohio
Department”) for approval of the merger. See Appx. Tab 1 (Umstead Decl.), Ex. C. With
respect to the membership status of CMIC group contract holders and the distinct treatment of
enrollees/certificate holders under those contracts, the Joint Petition stated:
… Group policyholders of CMIC, on the other hand, are members of CMIC and
are entitled to one vote on all matters submitted to a vote of the members of
CMIC. Group policyholders of CMIC also possess certain proprietary rights in
CMIC. The holders of certificates of benefits issued under CMIC’s group
policies are not members of CMIC, are not entitled to vote and do not have
proprietary rights in CMIC.
In order to preserve the existing voting and proprietary rights of CMIC’s group
policyholders, Associated’s general practice regarding voting and other
membership rights relating to group policies will not apply to holders of group
policies issued by CMIC. Instead, group holders of Guaranty Policies issued as
part of the Merger will be treated as members of Associated and will have
membership rights in Associated. Accordingly, the rights of group holders of
such Guaranty Policies will continue to include voting and proprietary rights, but
will not be the same as the rights of most other holders of group policies issued by
Associated (who generally do not have either voting or proprietary rights in
Associated)….
Appx. Tab 1 (Umstead Decl.), ¶ 6, Ex C at WP-M 00010984 (emphasis added). The same
information was set forth in the Member Information Circular sent to all CMIC members (and
filed with the Ohio Department) in connection with the solicitation of their vote on the merger
transaction. See Appx. Tab 1 (Umstead Decl.), ¶ 8, Ex. D at WP-M 00013860-13861.
During its review of the proposed merger, the Ohio Department focused on whether
certificate holders under CMIC’s group contracts – as opposed to employers that were the
holders of such contracts – would receive guaranty policies/membership certificates (and thus
become members of Anthem Insurance). Appx. Tab 1 (Umstead Decl.), ¶ 9, Ex. E at
WP-M 00011090-11091. In this regard, the Ohio Department inquired whether “existing
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certificate holders of CMIC group policies [will] receive the guaranty policy?” Id. CMIC
replied as follows:
No. Guaranty policies will be issued to existing CMIC group policyholders. The
terms of these guaranty policies will provide that the group policyholders (e.g.,
the employers), not the certificate holders (e.g., the employees), are the members
of, and will have equity rights in, [Anthem Insurance]. As you know, under
Ohio law, group policyholders of Ohio mutual insurance companies such as
CMIC are ‘members’ of the company and, therefore, have equity interests in the
company. For a variety of reasons, those rights of the existing group
policyholders of CMIC needed to be preserved in the merger.
Appx. Tab 1 (Umstead Decl.), ¶ 10, Ex. F at WP-M 00013180-13183 (emphasis added).
The Ohio Department understood and agreed with CMIC’s treatment of employers
holding group policies as members of the Ohio mutual insurance company with voting and
equity rights. Declaration of Harold T. Duryee (“Duryee Decl.”) (Superintendent of the Ohio
Department at the time of the merger) (Appx. Tab 4, ¶ 8). At the conclusion of its review, the
Ohio Department approved the merger in all respects, including the content and issuance of the
guaranty policies, and entered an Order and Journal Entry which stated in relevant part that
“[T]he Guaranty Policies also will give mutual company membership rights in [Anthem
Insurance] to the members of CMIC.” Appx. Tab 1 (Umstead Decl.), ¶ 12, Ex. H at
WP-M 00010191-10193.
The merger of CMIC and Anthem Insurance became effective on October 1, 1995.
Appx. Tab 1 (Umstead Decl.), ¶ 13. Anthem Insurance filed the different guaranty policy forms
with the Ohio Department. Appx. Tab 1 (Umstead Decl.), ¶ 11, Ex. G at WP-M 00014111-
14158. The form of the guaranty policy issued to employer group policyholders like the City
was in substantially the same form as that which appears as Exhibit B-2 to the Merger
Agreement. Compare id. at WP-M 000014134-14145 with Appx. Tab 1 (Umstead Decl.), ¶ 4,
Ex. B at WP-M 00012736-12744.
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D. The City’s Group Contracting History Shows That The City Became A
Member Of Anthem Insurance As A Result Of The Merger And Maintained
Its Membership Through The Renewal Or Replacement Of Its Group
Contracts.
As a result of the merger and in conformity with the Group Guaranty Policy, the City
became a member of Anthem Insurance, an Indiana mutual insurance company. Declaration of
Cynthia S. Miller (“Miller Decl.”) (Appx. Tab 5), ¶ 3. The form of guaranty policy issued to the
City states that the group members of CMIC would remain members of Anthem Insurance “as
long as the member’s insurance policy or health care benefits contract with CIC is in effect or is
renewed, amended or replaced without a lapse in coverage by any insurance policy or health
care benefits contract of CIC ….” Appx. Tab 1 (Umstead Decl.), Ex. B at WP-M 000012736,
Ex. C at p. 16, Ex B at WP-M 00012647. This guaranty policy protected the rights of
membership of pre-merger group members of CMIC and ensured that they became members of
Anthem Insurance. Deposition of Shawn Flahive (“Flahive Dep.”) (Appx. Tab 6) pp. 57-59.3
To understand the City’s status as a member of Anthem Insurance under the terms of the
guaranty policy, it is necessary to review the history of the City’s group contracts. The City’s
relevant contractual relationship with CMIC began in 1986 when it entered into a Master Group
Contract. Appx. Tab 3 (Schell Decl.) ¶¶ 3-4, Ex. 1. It was amended in 1987 and 1988 to reflect
3
By contrast, new group customers that entered into group contracts for the first time after the merger did not
become members of Anthem Insurance. Id. pp. 55-56; Appx. Tab 1 (Umstead Decl.), Ex. B at § 3.1(C)
(WP-M 00012647); Ex. D § 7.5. Those groups were issued a separate guaranty policy stating that the enrollees
under those group policies would be the members of Anthem Insurance. Id. The reason for this distinct
treatment – existing CMIC group policyholders became members of Anthem Insurance while entirely new group
policyholders doing business with CIC for the first time after the merger did not become members of Anthem
Insurance – was that Anthem Insurance did not grant membership rights to its Indiana group policyholders.
Anthem Insurance decided, with regulatory approval, to maintain that practice going forward in Ohio for new
group customers. Deposition of Tibor Klopfer (Appx. Tab 7), pp. 25-26, 38-39. Mr. Klopfer’s and some of the
other depositions cited in this brief were taken by plaintiffs’ counsel in a matter previously pending in Hamilton
County, Ohio. McAffry v. City of Cincinnati, No. A0611097. The McAffry plaintiffs (including Ronald Mell),
who were asserting claims similar to those at issue here, voluntarily dismissed that case on August 15, 2008.
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the revised rates through 1989. Id. ¶¶ 3-4, Exs. 2-3. Beginning in 1990, the Master Group
Contract was accompanied by an Alternate Financing Amendment (“AFA”), the Schedules to
which set forth the financing arrangements (premiums for insured lines of business and
administrative fees for the City’s self-funded plans) for the various employee groups that were
eligible for health care benefits under the City’s group contract. Id. ¶¶ 3-4. The AFA or its
Schedule was replaced each year between 1986 and 1999 to reflect changes in rates. Id. ¶ 4,
Exs. 2-13. In 2000, CIC revised the form of its group contracts. Deposition of Gary Walker
(“Walker Dep.”) (Appx. Tab 8) pp. 47-49, 51, 53-54, 77. At that time, the City’s 1986 Master
Group Contract was replaced by three separate contracts – a Fully Insured Master Contract, a
Health Insuring Corporation Master Contract and an Administrative Services Agreement. Appx.
Tab 3 (Schell Decl.) ¶¶ 6-9, Exs. 14-19. The financial terms of these contracts were set forth in
annual Amendments thereto. Id. The coverages and employee benefits made available to the
City’s employees and retirees under these replacement contracts were essentially the same as the
coverages and employee benefits made available under the 1986 Master Group Contract, as
amended. Id. The three revised contracts entered in 2000 were not intended to alter the contract
arrangement that had been in place for the previous decade. Id. ¶¶ 6-7. The 2000 contracts were
renewed and in effect throughout 2001. Appx. Tab 3 (Schell Decl.) ¶¶ 6-9, Exs. 15, 17, 19.
The City and either CMIC or CIC maintained a group contracting arrangement
continuously between 1986 and 2001. Appx. Tab 3 (Schell Decl.) ¶ 10. No “new” contracts
(such as plaintiffs’ alleged “1995 Group Contract,” “1998 HOT Rider Contract,”4 or “Missing
4
The City offered human organ transplant coverage to its employees beginning with the 1986 Master Group
contract. Appx. Tab 3 (Schell Decl.) ¶ 5. In 1998, the City opted to fully-insure this benefit. Id. Thus, the
City’s decision to purchase insured human organ transplant coverage for some of its employees was simply
documented within the framework of the City’s existing group contract at the time of its renewal. Id. This
change in the payment structure for an existing benefit did not constitute a “new” contract between the City and
Footnote continued on next page . . .
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Contracts”) were issued between 1995 and 2002. Id. ¶¶ 4-5, 10. All contracts entered between
the City and CIC from 1995 to 2001 constituted the renewal, amendment or replacement of the
pre-1995 contracts. Id. ¶ 10.
E. Anthem Insurance’s Demutualization Entitled Its Eligible Statutory
Members to a Distribution of Cash or Stock.
On June 18, 2001, the Board of Directors of Anthem Insurance approved a plan to
convert Anthem Insurance from a mutual insurance company to a stock insurance company (the
“Plan of Conversion” or “Plan”), as permitted under Indiana Code § 27-15. Appx. Tab 5 (Miller
Decl.) ¶ 4. Pursuant to the Plan of Conversion, “Eligible Statutory Members” of Anthem
Insurance would become entitled to receive cash or Anthem stock on the effective date of the
demutualization in an amount equal to the fair value of their membership interests in Anthem
Insurance. Id. ¶ 5.
During the Indiana Department’s review of the proposed demutualization, the Indiana
Department’s legal advisor, Sidley Austin LLP, analyzed who the members of Anthem Insurance
were. See Declaration of Richard Clemens (“Clemens Decl.”) (Appx. Tab 9), ¶ 5.5 With respect
to Ohio membership issues, the Indiana Department’s legal advisor requested, and Anthem
Insurance provided, documents related to the 1995 merger, including the Merger Agreement, the
corporate governance documents (articles of incorporation and by-laws) of CMIC, and the Ohio
CIC. Id. There is no separate contract reflecting the City’s change to the way it financed human organ
transplant coverage. Id.
5
Long before its approval of the demutualization, the Indiana Department hired professional advisors with
extensive experience in demutualization transactions to assist with the review of the proposed Anthem Insurance
demutualization. See Appx. Tab 9 (Clemens Decl.), ¶ 2. Those advisors included Sidley Austin LLP, Arthur
Andersen LLC, PricewaterhouseCoopers LLP and Fox-Pitt Kelton Inc. Id. at ¶ 2, Ex. A at p. 3.
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Department’s 1995 order approving the merger.6 The Indiana Department and its legal advisor
did not rely on Anthem Insurance’s determination that certain Ohio group customers were
entitled to demutualization compensation. Deposition of Amy Strati (“Strati Dep.”) (Appx.
Tab 10) pp. 70-71. They independently reviewed the relevant documents, as well as Ohio
insurance law “to satisfy [them]selves as to [those] conclusions.” Id; Appx. Tab 9 (Clemens
Decl.) ¶ 5; Deposition of Richard G. Clemens (“Clemens Dep.”) (Appx. Tab 11), pp. 60-62, 66-
67, 141-43, and 151-52.7
In Article XIII, the Plan of Conversion established the eligibility criteria for receiving a
distribution of the actuarial value of Anthem Insurance through the definitions of “Statutory
Member” and “Eligible Statutory Member”:
“Statutory Member” shall mean as of any specified date any Person who, in
accordance with the records, articles of incorporation and by-laws of Anthem
Insurance, is the Holder of an In Force Policy.
“Eligible Statutory Member” shall mean a Person who (a) is a Statutory Member
of Anthem Insurance on the Adoption Date and continues to be a Statutory
Member of Anthem Insurance on the Effective Date,8 and (b) has had continuous
health care benefits coverage with the same company during the period between
those two dates under any Policy or Policies without a break of more than one
day.
Appx. Tab 5 (Miller Decl.), Ex. A at WP-M 00003254-55.
6
The Indiana Department’s legal advisor assessed whether particular group policyholders in Ohio met the
eligibility requirements to be considered a “grandfathered group” and, thus, a Statutory Member of Anthem
Insurance. See Appx. Tab 9 (Clemens Decl.), ¶ 5. Where they deemed it appropriate, the Indiana Department
and its actuarial advisors asked the Department’s legal advisor’s for guidance concerning those membership
determinations. See id.
7
The depositions of Ms. Strati and Mr. Clemens were taken by plaintiffs’ counsel or co-counsel in a separate
action pending in the Southern District of Indiana – Ormond v. Anthem, Inc., Case No. 1:05-cv-01908-DFH-
TAB.
8
The term “Adoption Date” is defined in the Plan of Conversion as June 18, 2001. Appx. Tab 5 (Miller Decl.),
Ex. A at WP-M 00003253, 3235. The “Effective Date” of the Plan of Conversion was November 2, 2001, the
date that the Amended and Restated Articles of Incorporation of Anthem Insurance reflecting the adoption of the
Plan of Conversion were filed with and approved by the Indiana Department of Insurance, approved by the
Indiana Attorney General, and filed with the Indiana Secretary of State. Id. at WP-M 00003254, 3237.
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Pursuant to Indiana Code § 27-15-4-2 and § 4-22-2-26, the Indiana Department held a
public hearing to consider the proposed Plan of Conversion on October 2, 2001 in Indianapolis,
Indiana.9 Following the hearing, on October 25, 2001, the Indiana Department filed its Findings
of Fact, Conclusions of Law and Order Granting Application with Conditions (“Demutualization
Order”) approving the Plan of Conversion. Appx. Tab 5 (Miller Decl.), ¶ 7, Ex. C. Of particular
significance to this case, the Demutualization Order provides that, “[i]ndividual certificate
holders under group Policies issued to groups by Anthem Insurance’s Kentucky, Ohio and
Connecticut subsidiaries prior to its mergers with those former mutual companies are not
Statutory Members (the group policyholders are Statutory Members).” Id. ¶ 26,
WP-M 00011157 (emphasis added).
On October 29, 2001, a majority of Anthem Insurance’s Statutory Members voted to
approve and adopt the Plan of Conversion. Appx. Tab 5 (Miller Decl.), ¶ 9. The
demutualization became effective on November 2, 2001. Id. ¶ 10.
F. In 2001, Anthem Insurance Informed The Ohio Department That
“Grandfathered Groups” – Not The Employees Or Retirees Eligible For
Benefits Under Those Groups’ Contracts – Would Receive A Distribution In
Connection With The Demutualization.
In preparation for the Demutualization, Anthem Insurance filed a 2001 Form D Filing in
which it sought, among other things, approval from the Ohio Department to cause all issued
Guaranty Policies to expire at their next anniversary following the effective date of the
Demutualization. Declaration of Marjorie Maginn (“Maginn Decl.”) (Appx. Tab 12), ¶¶ 3-4.
The 2001 Form D filing explained that:
9
The fact that “grandfathered groups” in Ohio and other states were Statutory Members of Anthem Insurance was
explicitly addressed in testimony at the public hearing held on October 2, 2001. Appx. Tab 5 (Miller Decl.), ¶ 6,
Ex. B, p. 28, at WP-M 00003353.
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Essential to the [demutualization] is the distribution of cash or stock, subject to
certain limitations, of Anthem, Inc. to eligible statutory members of Anthem
Insurance in exchange for their membership interests. As detailed below, since
the mergers of the local plans in Kentucky, Ohio and Connecticut with Anthem
Insurance, Guaranty Policies have been issued by Anthem Insurance to make the
customers of the local plans who qualified for membership in Anthem Insurance
statutory members of Anthem Insurance.
Prior to the CMIC merger, the policyholders/owners of CMIC included persons
holding individual direct-pay policies with CMIC (including, but not limited to,
Medicare Supplement policies), and the group policyholder in the case of a
group insurance policy.
Id. ¶ 3, Ex. A at WP-M 00010638 (emphasis added). The Ohio Department did not question or
challenge in any manner Anthem Insurance’s description of the membership rights belonging to
employers holding group policies. Appx. Tab 12 (Maginn Decl.), ¶ 6. It approved the 2001
Form D filing on September 14, 2001. Id. ¶ 7, Ex. B.
G. Anthem Issued Stock To the City As A Result Of The Demutualization.
On November 2, 2001, Anthem issued 870,021 shares of its common stock to the City in
book entry form. Appx. Tab 5 (Miller Decl.), ¶ 12.
I. SUMMARY OF CLAIMS
Twelve of the Complaint’s seventeen claims are asserted against the WellPoint
Defendants. All twelve such claims constitute a collateral attack on the Demutualization Order.
As noted above, plaintiffs assert two alternative theories of liability in their Complaint.
Plaintiffs’ first theory is based on their enrollment under the City’s Master Group Contract prior
to the merger. Compl. ¶ 179. Counts Eight through Ten10 (the “Ohio Law Claims”) advocate
this theory. In these counts, plaintiffs assert claims for breach of the following three agreements
10
Plaintiffs describe Count Thirteen as being related only to the Ohio Law claims and as being asserted under both
theories of liability. Compl. ¶ 179. Based on Count Thirteen’s substance (breach of fiduciary duty by the City)
and status as a tort claim, the WellPoint Defendants assume that plaintiffs intended to include it in the latter,
more comprehensive category.
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to which they were not parties: the Plan and Joint Agreement of Merger between CMIC and
Anthem Insurance (Count Eight), the Guaranty Policy for Current Groups between Anthem
Insurance and the City (Count Nine), and the Merger Agreement between CMIC and Anthem
Insurance (Count Ten). The thrust of these claims is that the subject agreements should be
interpreted, in light of inapplicable provisions of Ohio law, to grant equity rights in Anthem
Insurance to the City’s employees but not the City. Summary judgment should be entered on the
Ohio Law Claims because the provisions of Ohio law that form the basis for these claims are
neither contained in nor applicable to the agreements that plaintiffs allege were breached and do
not say what plaintiffs interpret them to say.
The second theory is based upon plaintiffs’ wholly unsupported contention that CIC
issued certain “new” group health insurance policies to the City after the merger, giving
membership rights to the individuals covered by these purported “new” policies as if they were
new customers of CIC. Compl. ¶ 179. Counts One through Four (the “New Contract Claims”)
relate to this theory. These counts allege breaches of one “contract” that never existed,
Anthem’s Articles of Incorporation (which is not a contract and which granted plaintiffs no
rights), and the Plan and Joint Agreement of Merger between CMIC and Anthem Insurance (not
a contract to which plaintiffs were parties). This second, alternative theory and all claims
asserted under it cannot overcome two insurmountable obstacles – the City was not a “new
customer” following the merger and it purchased only renewal or replacement contracts (not
“new” ones) following the merger.
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The remaining claims, Count Five (for breach of Anthem Insurance’s Plan of
Conversion)11 and Counts Twelve, Fourteen, Fifteen and Seventeen (the “Tort Claims”), are
asserted under both theories. The first such claim alleges a breach of something that was not a
contract and did not grant any rights to plaintiffs. The latter four claims allege that the WellPoint
Defendants (a) breached fiduciary duties and/or aided and abetted the City’s allegedly wrongful
conduct by doing the same thing that purportedly constituted a breach of the merger-related
contracts (i.e., by issuing stock to the City) (Counts Twelve, Fourteen and Fifteen)12; and
(b) engaged in fraud in connection with their disclosures concerning the issuance of stock to the
City (based on the premise that Anthem Insurance told its members and regulators – but not
plaintiffs – that it was going to do exactly what it did) (Count Seventeen).
Plaintiffs’ claims fail for these and other reasons. Summary judgment is proper on the
Ohio Law claims for the reasons set forth in parts IV.B. and IV.C. of this memorandum and is
proper on the New Contract Claims for the reasons set forth in part IV.D. The Tort Claims
cannot survive for the reasons discussed at parts IV.F. and IV.G., infra.
II. ARGUMENT
A. Plaintiffs Cannot Collaterally Attack The Indiana Department’s Findings
And Conclusions.
Plaintiffs’ theories of the case ignore the substantive law that governed the
demutualization of Anthem Insurance. That transaction took place under the regulatory
oversight of the Indiana Department, which by statute has exclusive jurisdiction to regulate
11
Plaintiffs also failed to categorize Count Five so the WellPoint Defendants assume it is asserted under both
theories.
12
Two of plaintiffs’ claims are labeled “Fourteenth Claim for Relief.” Compl. pp. 68, 70. For clarity, the
WellPoint Defendants will refer to the second of these claims (“Anthem Insurance’s Breach of Fiduciary
Duties”) as Count Fifteen.
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demutualizations of Indiana mutual insurance companies. See Ind. Code § 27-15.13 Following a
public hearing in which it took testimony, weighed evidence, and received and considered
comments from the public regarding the proposed conversion, the Indiana Department approved
Anthem Insurance’s Plan of Conversion. In a 22-page order, the Indiana Department specifically
found that the Plan complied with Indiana’s Demutualization Law. Appx. Tab 5 (Miller Decl.),
Ex. C.
The Demutualization Order is directly on point concerning the membership issue pressed
by each of plaintiffs’ claims. It expressly states that, “[i]ndividual certificate holders under
group Policies issued to groups by Anthem Insurance’s Kentucky, Ohio and Connecticut
subsidiaries prior to its mergers with those former mutual companies are not Statutory Members
(the group policyholders are Statutory Members).” Id. at WP-M 00011157. Thus, the City, as
the holder of the group contracts, not any individuals like plaintiffs who held certificates
subordinate to those contracts, was the Statutory Member according to the Demutualization
Order. Only Statutory Members could become Eligible Statutory Members, and only Eligible
Statutory Members were entitled to receive consideration under the Plan of the Conversion as the
Indiana Department held in its Demutualization Order. Appx. Tab 5 (Miller Decl.), Ex. C, ¶ 22.
Plaintiffs cannot dispute that their claims attack the membership structure of Anthem
Insurance approved by the Indiana Department and which formed the basis of the distribution of
Anthem Insurance’s value in 2001. Anthem Insurance did exactly what the Indiana Department
13
The Indiana Department notified the insurance regulators in eight other states of its view that federal regulations
gave the Indiana Department exclusive jurisdiction over review and approval of the demutualization. See Appx.
Tab 9 (Clemens Decl.), ¶ 9, Ex. A at p. 3. See 15 U.S.C. § 6715(3) (“no State may … prevent, significantly
interfere with, or have the authority to review, approve, or disapprove a plan of reorganization by which an
insurer proposes to reorganize from mutual form to become a stock insurer … unless such State is the State of
domicile of the insurer”).
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said it must do for holders of group contracts issued in Ohio prior to the 1995 merger who also
were Eligible Statutory Members under the Plan – it provided such holders, including the City,
with consideration in exchange for extinguishing their membership interests. Anthem Insurance
complied with its own Plan, the Demutualization Order and Indiana law. Plaintiffs’ claims fly in
the face of those authorities.
In situations like those present here, federal courts have declined to exercise jurisdiction
over claims that challenge decisions of agencies that have been delegated comprehensive
legislative authority. While a plaintiff may bring a direct challenge to actions outside the
purview of a regulatory agency, a plaintiff may not collaterally attack actions within the agency’s
exclusive jurisdiction. See, e.g., Ordower v. Office of Thrift Supervision, 999 F.2d 1183, 1188
(7th Cir. 1993); Dougherty v. Carver Fed. Sav. Bank, 112 F.3d 613, 620-21 (2nd Cir. 1997)
(district court review of agency decision only proper where agency has not decided the issue
raised in the complaint or if decision on that issue was not essential to its final order); Reschini v.
First Fed. S&L Ass’n of Indiana, 46 F.3d 246, 251-252 (3rd Cir. 1995) (quoting Ordower, 999
F.2d at 1188) (district court review of “action that agency has approved or that is the natural
outcome of the agency’s decision” not permitted). For example, in Ordower, plaintiffs were
account holders in a bank that demutualized under the regulatory oversight of the Office of Thrift
Supervision (“OTS”). They claimed that the bank had undervalued its net worth notwithstanding
the OTS’s explicit determination to the contrary. The Court found that plaintiffs “may not wage
a collateral attack on the valuation [of a demutualizing bank] approved by the OTS” by
challenging the valuation of the company. Ordower, 999 F.2d at 1188. The court stressed that
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plaintiffs could not save their claim by “repackaging” it as one for breach of fiduciary duty since
the substantive objections raised were governed by the agency’s decision-making authority. Id.14
Plaintiffs’ claims in this case are like the disallowed claims in Ordower. Here, the
Indiana Department had the exclusive authority and duty to review and approve the terms of the
demutualization, including the provisions of Anthem Insurance’s Plan of Conversion that
detailed who its eligible members were. Ind. Code § 27-15-4. Indeed, the Demutualization
Order makes clear that the Indiana Department specifically determined that people like plaintiffs
were not members of Anthem Insurance at the time of the demutualization. Appx. Tab 5 (Miller
Decl.), ¶ 7, Ex. C at WP-M 00011157. The Court cannot re-evaluate an issue that has been
considered and determined by the Indiana Department simply because plaintiffs’ request to do so
is disguised as tort and contract claims.15 See Tierney v. John Hancock Mut. Life Ins. Co., 791
N.E.2d 925, 939 (Mass. Ct. App. 2003) (affirming dismissal of breach of contract and fiduciary
duty claims where “deference to the experience and expertise of the [insurance] commissioner”
was appropriate since claims were “so intertwined with [commissioner’s] statutory mandate” to
determine fairness of demutualization plan); Fiala v. Metro. Life Ins. Co., 6 A.D.3d 320, 322
14
The court in Ordower concluded that it had jurisdiction to hear securities fraud claims based on alleged
misrepresentations in proxy materials that were not considered by the OTS or within the scope of its jurisdiction.
See Ordower, 999 F.2d at 1188. Here, however, all of the proxy/member mailing materials were reviewed and
approved by the Indiana Department. Appx. Tab 5 (Miller Decl.), Ex. C, ¶ 67 at WP-M 00011168.
15
Both Indiana and Ohio law do not permit private parties to bring suit to challenge actions that are within the
exclusive purview of regulatory agencies. Indianapolis Water Co. v. Boone Circuit Court, 307 N.E.2d 870, 872-
73 (Ind. 1974) (dismissing claims against regulated entity based on findings that, before reaching its decision, the
appropriate state agency had held hearings and considered the evidence that the plaintiffs sought to introduce in a
subsequent litigation); Kazmaier Supermarket, Inc. v. Toledo Edison Co., 573 N.E.2d 655, 659-660 (Ohio 1991)
(“this court has recognized that where the General Assembly has enacted a complete and comprehensive
statutory scheme governing review by an administrative agency, exclusive jurisdiction is vested within such
agency”). The Indiana demutualization statute provides the exclusive remedy for challenging the Indiana
Department’s approval of the demutualization. See Ind. Code § 27-15-15-1. Plaintiffs did not avail themselves
of that remedy. Appx. Tab 5 (Miller Decl.), ¶ 8.
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(N.Y. App. 2004) (breach of contract and fiduciary duty claims related to demutualization were
impermissible collateral attacks on insurance superintendent’s approval).
B. Counts Eight, Nine and Ten For Breach Of Contract (the Ohio Law Claims)
Fundamentally Misconstrue The Relevant Agreements.
1. The Merger Documents clearly provide that holders of group policies
like the City, not their employees or retirees, were members of CMIC
and would become members of associated with attendant voting and
equity rights.
Plaintiffs’ argument that the Merger Agreement, the PJAM and the Guaranty Policy
(collectively, the “Merger Documents”) required demutualization payments to be made to them
is directly contrary to the express terms of the Merger Documents. Their claim depends upon
their lifting of isolated phrases from a single section of the Merger Agreement. Plaintiffs simply
ignore the plain language of the Merger Documents making clear that CMIC group policyholders
like the City, and not their employees, (a) were the members of CMIC and (b) became the new
members of Anthem Insurance with attendant voting and equity rights.
Indiana courts16 have provided clear rules for interpreting contracts:
When the language of a contract is clear and unambiguous, the intent of the
parties is determined from the four corners of the instrument. In such a situation,
the terms are conclusive and we will not construe the contract or look at extrinsic
evidence, but will merely apply the contractual provisions.
First Nat. Bank & Trust v. Indianapolis Pub. Hous. Agency, 864 N.E.2d 340, 350 (Ind. Ct.
App. 2007) (citing Booneville Convalescent Ctr., Inc. v. Cloverleaf Heathcare Servs., Inc., 834
16
Indiana law governed the Merger Agreement. See Appx. Tab 1 (Umstead Decl.), Ex. B, at § 14.11
(WP-M 00012705). However, Ohio law, to which the group guaranty policy/membership certificate was subject
(see id. at WP-M 00012744), does not differ in any meaningful respect on basic points of contract construction.
See Shifrin v. Forest City Enters., 597 N.E.2d 499, 501 (Ohio 1992) (“When the terms in a contract are
unambiguous, courts will not in effect create a new contract by finding an intent not expressed in the clear
language employed by the parties.”); Foster Wheeler Enviresponse, Inc. v. Franklin County Convention
Facilities Auth., 678 N.E.2d 519, 526 (Ohio 1997) (“[A] writing, or writings executed as part of the same
transaction, will be read as a whole, and the intent of each part will be gathered from a consideration of the
whole.”).
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N.E.2d 1116, 1121 (Ind. Ct. App. 2005)) (internal citations omitted).
Furthermore, when reading a contract, the Court should look at the entire contract, not
isolate provisions from the context of the whole. Evan v. Poe & Assocs., Inc., 873 N.E.2d 92, 98
(Ind. Ct. App. 2007) (“The meaning of a contract is to be determined from an examination of all
of its provisions, not from a consideration of individual words, phrases, or even paragraphs read
alone.”). “[I]n the absence of anything to indicate a contrary intention, writings executed at the
same time and relating to the same transaction will be construed together in determining the
contract.” GEICO Ins. Co. v. Rowell, 705 N.E.2d 476, 482 (Ind. Ct. App. 1999) (quoting Salcedo
v. Toepp, 696 N.E.2d 426, 435 (Ind. Ct. App. 1998)).
Section 3.1 in both the Merger Agreement and the PJAM clearly provides that CMIC
members would receive in exchange for their membership in CMIC a guaranty policy that would
give them rights in Anthem Insurance.17 As plaintiffs admit, the Group Guaranty Policy and
Certificate of Membership incorporated into the Merger Agreement, was issued to the City, not
to its employees and retirees. Compl. ¶¶ 106, 111, 113. As set forth above, that Guaranty Policy
specified that “[Anthem] Member means the person or entity identified above who is a party to
this [Guaranty] Policy and the Community Contract.” That party was the City. It also plainly
states that the “[Anthem] Member shall be entitled to all of the rights of membership in
17
The evidence concerning the contracting parties’ subjective intent makes clear that the parties did not intend for
Section 3.1(B) to give rights to individuals like the plaintiffs in this case. Indeed, both CMIC and Anthem
Insurance understood that, in the context of insured group contracts issued by CMIC, the member of CMIC was
the employer that held the contract, not the individuals participating in the insured benefits. See Deposition of
Appx. Tab 7 (Klopfer Dep.), pp. 23-24 (explaining that Mr. Klopfer was Anthem Insurance’s outside counsel
involved in the negotiations concerning the 1995 merger and the drafting of the Merger Documents); 25-27; 36-
39; 52-53; 115-117; Deposition of Raymond L. Umstead (Appx. Tab 13), pp. 18, 179-182 (explaining that
Mr. Umstead was CMIC’s lead internal lawyer providing advice and counsel to CMIC’s CEO on all aspects of
the merger). It was the intent of both CMIC and Anthem Insurance that the membership interests belonging to
employers holding CMIC’s insured group contracts would give rise to membership interests in Anthem
Insurance. See id; Appx. Tab 13 (Umstead Dep.), pp. 161-163.
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Associated … including the right to one vote … and equity rights in the event of …
demutualization [and that] … No Enrollee or Enrollee dependent shall receive any equity rights
by virtue of being an Enrollee or Enrollee dependant.” Appx. Tab 1 (Umstead Decl.), Ex. B at
WP-M 00012736; 00012738-39 (emphasis added).18
Plaintiffs’ proposed reading of the Merger Documents would turn all of this plain
language on its head. The Merger Documents make clear that the City, and not plaintiffs were
the “Community Members” who were entitled to and did receive equity rights in Anthem
Insurance under the Merger Agreement and thus became entitled to receive a distribution of
value in the subsequent demutualization of Anthem Insurance.19
2. Although the language of the Merger Documents is clear and there is
no need to resort to extrinsic evidence, that evidence is one-sided and
lends no support to plaintiffs’ Ohio Law Claims.
What the parties said and did contemporaneously with the execution of the Merger
Documents and in connection with the Ohio Department’s approval of the merger is entirely
18
Yet another reason why summary judgment should be entered against plaintiffs on the claim for breach of the
Merger Agreement is that non-parties to the Merger Agreement, including purported third party beneficiaries of
like plaintiffs, have no right to seek redress for any alleged contractual violations. Section 14.9 of the Merger
Agreement states: “This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies of any nature under or by reason of this Agreement.” Appx. Tab 1 (Umstead
Decl.), Ex. B at WP-M 00012704. Indiana law enforces such restrictions on claims by non-parties. See Indiana
Gaming Co., L.P. v. Blevins, 724 N.E.2d 274, 277-79 (Ind. Ct. App. 2000) (holding that allowing contractors to
enforce a contract between a city and the Indiana Gaming Commission as third party beneficiaries would have
rendered the exclusionary provision meaningless and be contrary to “the intent of the parties to disallow a suit by
anyone other than the Guarantor or a party to the Agreement.”) (emphasis added); Advanced Ground Sys. Eng’g,
Inc. v. RTW Indus., Inc., 388 F.3d 1036, 1043 (7th Cir. 2004) (“Indiana courts … recognize that the general
third-party beneficiary rule is a default rule, which can be altered by express agreement of the parties.”).
19
None of the allegations in Counts Two, Eight and Ten relates to any contract to which WellPoint or CIC was a
party. Instead, they relate exclusively to the Merger Agreement and the PJAM between CMIC and Anthem
Insurance, and alleged breaches thereof. Ohio law is clear that one who is not a party to a contract cannot be in
breach of that contract. Johnston v. Cochran, 2007 WL 2421821, at *5 (Ohio Ct. App. Aug. 28, 2007); Zab v.
Goforth, 1998 WL 598745, at *3 (Ohio Ct. App. Sept. 10, 1998) (citing Kotyk v. Rebovich, 621 N.E.2d 897
(Ohio Ct. App. 1993)). WellPoint and CIC are not parties to the Merger Agreement or the PJAM and, thus,
cannot have breached them.
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consistent with the plain meaning of the Merger Documents and completely inconsistent with
plaintiffs’ theory of contract breach for the Ohio Law Claims. Other than a contract’s plain
language, the best place to look for evidence of the parties’ intent is the practical interpretation
given to it by the contracting parties themselves: “The best criterion of the meaning of a contract
is the construction which the parties themselves place on it, and ordinarily their interpretation is
looked to by the court in determining the meaning of the contract.” Clark Mut. Life Ins. Co. v.
Lewis, 217 N.E.2d 853, 857 (Ind. Ct. App. 1966).20
As set forth above, the parties clearly described who the members of CMIC were at the
time of the merger, and who was to receive membership rights, including both voting rights and
equity rights, in the surviving Indiana mutual company. The membership structure was designed
to preserve the membership of CMIC’s group policyholders like the City to the exclusion of
individuals enrolled under those policyholders’ group policies. This was so because Anthem
Insurance had followed a different practice with regard to its Indiana members than that followed
in Kentucky, Ohio and later in Connecticut. The parties explained this to the Ohio Department
in their petition for approval (see supra, Section II.B.-C.), in response to the Ohio Department’s
questions concerning who would receive group guaranty policies (see id.) and to the Ohio
membership in connection with soliciting their vote on the merger. See Appx. Tab 1 (Umstead
Decl.), Ex. D at WP-M 00013860-13861. All this was done openly and unambiguously.21
20
Indiana and Ohio law are in accord on this point as well. “If a court is genuinely interested in what the parties to
the contract meant, ‘there is no surer way to find out … than to see what they have done.’” Cincinnati Ins. Co. v.
ACE INA Holdings, Inc., 886 N.E.2d 876, 883 (Ohio Ct. App. 2007) (quoting Am. Home Prod. Corp. v. Liberty
Mut. Ins. Co., 565 F. Supp. 1485, 1503 (S.D.N.Y. 1983)).
21
If plaintiffs’ theories of Ohio law are correct, any wrong that occurred here occurred in 1995 when the merger,
which conferred membership rights in Anthem Insurance to the City and not to plaintiffs, was approved by the
Ohio Department. For good reason, any challenge to the correctness of the Ohio Department’s approval should
have been made long ago. Plaintiffs’ tortured contract and tort theories brought 13 years later are nothing more
than an improper end run and assault on the legitimate finality interests of the parties and the public.
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Plaintiffs’ argument that they and not the City were entitled to equity rights in Anthem
Insurance is also at odds with the Ohio Department’s approval of the merger in 1995 and at odds
with the understanding of the Superintendent of Insurance at that time. Appx. Tab 4 (Duryee
Decl.), ¶¶ 6-8.
C. Plaintiffs’ Arguments About The Ohio Demutualization Law Are Unavailing.
1. The Court should never reach the Ohio demutualization law.
The premise of plaintiffs’ Ohio Law Claims is their erroneous contention that they were
the members of Anthem Insurance. Because all of the relevant transactional documents disprove
this claim, plaintiffs point to the Ohio demutualization law, which they contend supports their
view. However, Ohio’s demutualization law does not apply to Anthem Insurance’s
demutualization.
To be sure, Ohio’s mutual company merger statute governed the 1995 merger. The
merger statute makes clear that equity ownership interests in Ohio domestic mutual insurance
companies are held by their “members.”22 Indeed, R.C. § 3941.38(B)(2) states that, in the event
of a merger involving an Ohio mutual insurance company, the Superintendent of the Ohio
Department shall not approve the merger if it “will be inequitable to the members of the
domestic mutual company or companies in that it will result in a substantial reduction of the
equity of such member without reasonably compensating benefits or advantages.” (Emphasis
added).
CMIC merged with Anthem Insurance in accordance with Chapter 3941 of the Revised
Code. The Ohio Department specifically approved the merger “pursuant to Section 3941.38 of
22
R.C. § 3941.07 provides that “[e]very policyholder of a domestic mutual company is a member while his policy
is in force, and is entitled to one vote, and no more.”
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the Revised Code.” Appx. Tab 1 (Umstead Decl.), Ex. H at WP-M 00010192. Thus, CMIC and
Anthem Insurance complied with the Ohio statutory provisions that governed the merger.
At the time of the demutualization, however, Anthem Insurance was an Indiana mutual
insurance company, and its demutualization was governed by Indiana’s demutualization law.
Accordingly, the Court does not need to reach plaintiffs’ arguments regarding the construction of
Chapter 3913 of the Revised Code dealing with the demutualization of Ohio mutual insurers – a
type of transaction that did not occur here.
2. The Merger Agreement does not look to Ohio law to determine who
would receive equity rights in Anthem Insurance post-merger.
Nothing supports plaintiffs’ assertion that “pursuant to the Merger Agreement the City
received rights upon the demutualization of Anthem Insurance equivalent to the rights in the
Group Policy that the City had under Ohio law….” Compl. ¶ 121. They rely exclusively on
their erroneous construction of Section 3.1(B) of the Merger Agreement to make this argument.
But, as explained above, that provision and the Guaranty Policies it references are crystal clear
about who, in the group policy context, received equity rights in Anthem Insurance post-merger.
In the case of group policies issued by CMIC prior to the merger, the holder of those policies, not
the individuals enrolled under them, received those rights.
Section 3.1(B)(ii) of the Merger Agreement does not say that Ohio law should be
consulted to determine who would receive equity rights in Anthem Insurance; does not say
anything about conferring rights upon people like plaintiffs – certificate holders under group
contracts; and does not say that a possible conversion of Anthem Insurance from an Indiana
mutual company to an Indiana stock company would be governed by Ohio law.
Instead, the provision simply states that, in the case of a former Community Member, the
value of that (now Associated) member’s interest in the combined post-merger company will
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include the pre-merger value of that member’s interest in CMIC. Appx. Tab 1 (Umstead Decl.),
Ex. B, at WP-M 00012644-12647. The reference to Ohio law relied upon by plaintiffs is found
in a parenthetical which poses “for illustrative purposes” a hypothetical liquidation or
demutualization of Associated immediately after the merger and posits that the former
Community Member would receive value equivalent to the value calculated “in accordance with
Ohio law” that the Community Member would have received if a demutualization had occurred
immediately before the merger. Id. at WP-M 00012646-12647. This reference to Ohio law is
not included in the PJAM’s and the Guaranty Policy’s parallel provisions dealing with the
granting of equity rights in Anthem Insurance to former members of CMIC.
Plaintiffs would have the Court read the Merger Agreement’s oblique and hypothetical
reference to Ohio law to mean that the merger granted rights not to group policy holders and
group contract holders, like the City, but to the enrollees under those group contracts, employees
and retirees like plaintiffs and their purported class. This contention is simply fantastic.
Plaintiffs’ proposed reading would require the Court to ignore the repeated and explicit
provisions of the Merger Documents and the regulatory proceedings and approval of the merger
clearly granting equity rights in Anthem Insurance to master group contract holders, i.e., to the
City. Plaintiffs’ contention that the Merger Agreement’s reference to Ohio law means that
plaintiffs were entitled to receive shares in Anthem’s 2001 demutualization must be rejected.
3. In any event, plaintiffs misconstrue the Ohio Demutualization Statute;
even if it applied, the shares were properly issued to the City.
Plaintiffs’ interpretation of Ohio law is incorrect. Plaintiffs claim to see in the Ohio
Demutualization Law a categorical bar on group health policy owners having membership rights
to receive demutualization benefits. No such bar exists.
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The Ohio Demutualization Law states that if a mutual insurance company converts into a
stock insurance company, “each mutual policyholder is entitled to such shares of stock of the
new corporation as his equitable share of the value of the mutual company will purchase.”
R.C. § 3913.22(A). A preceding section defines Policyholder for the purposes of the Ohio
Demutualization Law:
“Policyholder” means the person, group of persons, association, corporation,
partnership, or other entity named as the insured under a mutual policy of
insurance other than life issued and in force on the date of the examination
conducted pursuant to division (C) of section 3913.21 of the Revised Code.
R.C. § 3913.20(B). As an initial matter, plaintiffs have come forward with no evidence
indicating that they or any other employee or retiree of the City was “named as the insured”
under the group contracts held by the City, such that plaintiffs could qualify as the
“Policyholder” within the meaning of this provision. Setting that problem aside, plaintiffs’
unlikely contention is that with this definition of Policyholder, applicable only to the four
sections of the Ohio Demutualization Law, the Ohio Legislature intended a sweeping mandate:
that, in the context of group health insurance policies, membership rights must be divided, and
that policy owners, while entitled to vote, are not entitled to demutualization benefits. That
mandate is not apparent on the face of the statute. Plaintiffs’ approach to statutory construction
is to fixate on the phrase “named as the insured” (or “named insured,” which is plaintiffs’, but
not the statute’s, short-hand for that phrase) and look at the meaning of those words in unrelated
contexts. See Compl. ¶¶ 90-96. Yet taking note of the entire statutory scheme, the purpose of
the statute, the interpretation of those affected by the statutes, and the interpretation of the
regulators charged with enforcing this statute, it is clear that plaintiffs’ entire theory for recovery
is built on a foundation of sand.
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The paramount concern of statutory interpretation is to ascertain the intent of the
legislature in enacting it. Cleveland Mobile Radio Sales, Inc. v. Verizon Wireless, 865 N.E.2d
1275 (Ohio 2007). In determining the intent of the legislature, courts should look to the purpose
of the statute. Akron Mgmt. Corp. v. Zaino, 760 N.E.2d 405 (Ohio 2002). Merely construing
words in isolation will not do.23 In interpreting a statute, Ohio courts may consider several
things when the meaning of a statute is not clear from its face, including “the object sought to be
attained,” “the consequences of a particular construction” and “the administrative construction of
the statute.” R.C. § 1.49.
Courts give great weight to the settled interpretation of a statute by those affected by the
statute and those charged with interpreting it. See Bankamerica Corp. v. United States, 462 U.S.
122, 131-32 (1983) (“When a court reaches the same reading of the statute as the practical
construction given it by the enforcing agencies over a 60-year span, that is a powerful weight
supporting such reading. Here, moreover, the business community directly affected and the
enforcing agencies and the Congress have read this statute the same way for 60 years.”).
Additionally, “[i]t is a fundamental tenet of administrative law that an agency’s interpretation of
a statute that it has the duty to enforce will not be overturned unless the interpretation is
unreasonable.” State ex rel. Clark v. Great Lakes Constr. Co., 791 N.E.2d 974, 975-76 (Ohio
2003). This interpretation is entitled to “great respect” especially in so far as it affects vested
23
As the Supreme Court of the United States has taught: “The definition of words in isolation, however, is not
necessarily controlling in statutory construction…. Interpretation of a word or phrase depends upon reading the
whole statutory text, considering the purpose and context of the statute, and consulting any precedents or
authorities that inform the analysis.” Dolan v. United States Postal Serv., 546 U.S. 481, 486 (2006); see also
Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007) (It is a “fundamental canon of
statutory construction that the words of a statute must be read in their context and with a view to their place in
the overall statutory scheme.”) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132-33
(2000)).
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rights preserved or acquired under the act as so interpreted. State ex rel. Crabbe v. Middletown
Hydraulic Co., 151 N.E. 653 (Ohio 1926).
Looking at the entire statutory scheme exposes plaintiffs’ interpretation of the Ohio
Demutualization Law as invalid. First, it would make no sense for the Ohio Legislature to
restrict what membership rights a group health policy owner can have by the implicit operation
of the definitions contained in the Ohio Demutualization Law. Far more likely such a restriction
would be contained in Chapter 3941 of the Ohio Revised Code, which is titled “Operation of
Mutual Insurance Companies.” No such restriction can be found in Chapter 3941. As noted
above, it makes clear that members hold both voting and equity rights in the mutual company.
Likewise, if the Ohio Legislature wanted to restrict what membership rights an Ohio
mutual insurance company can bestow upon a group health insurance policy owner, it might
have required every group health insurance policy to state explicitly that the enrollees are entitled
to demutualization rights. It does not. Instead, in a section titled “Group sickness and accident
insurance,” it indicates that “policyholder” in the group health insurance setting means the
“employer,” not the enrollee: The Ohio Legislature requires every group sickness and accident
insurance policy to contain
[a] provision that the insurer will furnish to the policyholder, for delivery to
each employee or member of the insured group, an individual certificate
setting forth in summary form a statement of the essential features of the
insurance coverage of the employee or member and to whom benefits thereunder
are payable.
R.C. § 3923.12(C)(2) (emphasis added). Statutory language like this (and the fact that the
natural meaning of “policyholder” in the group context is the employer, as owner of the policy,
not the enrollee) forces plaintiffs to concede that (a) the City’s membership in CMIC was
“grandfathered” via the 1995 merger (Compl. ¶ 55); and (b) the City “may have been deemed a
policyholder of CMIC for other purposes” (id. ¶ 97).
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Plaintiffs are left to argue that the definition of policyholder in the Ohio Demutualization
Law is radically different from that in the other parts of the Code. But they provide no reason
why the Ohio Legislature would choose to do this and completely ignore the Legislature’s
purpose for including a special definition of “Policyholder” applicable only to the Ohio
Demutualization Law. Reading the entire subsection, the purpose of 3913.20(B) is clear: to
define which of the demutualizing company’s policyholders, from the company’s inception to
the present, matter for purposes of demutualization. Indeed, section 3913.20(B) clarifies that one
must have had a policy “issued and in force on the date of the examination conducted pursuant to
division (C) of section 3913.21 of the Revised Code” to have such an entitlement. That is all it
does.
Plaintiffs’ interpretation of section 3913.20(B) is at odds with other parts of the Ohio
Demutualization Law. Section 3913.22(C) commands that demutualization payment “shall be
issued to the owner or owners of a mutual policy in force on the date of the examination
conducted pursuant to division (C) of section 3913.21 of the Revised Code, as such owner or
owners appear on the face of the policy.” (Emphasis added) Plaintiffs concede that the City
owned the relevant mutual policy. Compl. ¶ 97. The Court should reject plaintiffs’
interpretation of section 3913.20(B) because it construes policyholder in a way that is at odds
with its admittedly “usual meaning” and with the way it is used in other parts of Title 39.
That the City was the “policyholder” or member of the Ohio mutual insurance company
for all purposes was consistent with the understanding of the Superintendent of the Ohio
Department at the time of the merger. See Appx. Tab 4 (Duryee Decl.), ¶ 8. More recently, the
Ohio Department of Insurance and the Ohio Secretary of State have approved amendments to
articles of incorporation and/or bylaws of Ohio-domiciled mutual insurance companies that
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expressly address the issue of membership rights in the context of group policies. See
Declaration of Neil K. Rector (Appx. Tab 14), ¶¶ 5-6. In each case, the articles and/or bylaws
that have been approved recognize that the group policyholder, rather than the individual
certificate holders/enrollees under the policy, is the member of the mutual company. Id.
Moreover, the principal Ohio case that has addressed who, in the context of a group
policy, is entitled to the proceeds of a demutualization flatly rejected claims like those made by
plaintiffs here. In Greathouse v. City of E. Liverpool, 823 N.E.2d 539 (Ohio Ct. App. 2004), a
former employee of the City of East Liverpool who had health insurance coverage through a
group policy maintained by the city alleged that he, not the city, should have received the
proceeds of the stock issued to the city in connection with the 2001 demutualization of Anthem
Insurance. Id. at 541. The court in Greathouse observed that “[b]ecause the city purchased the
insurance, it was the owner of the policy. Had the city opted to change insurers, it would not
have needed appellant’s or other employees’ permission to do so.” Id. at 543-44. The court
concluded:
Because the city, not appellant, contracted with Anthem and owned the policy,
appellant was not entitled to the stock proceeds. As a benefit of his employment,
the city provided appellant with health insurance–nothing more. Appellant cannot
contend that he somehow owned the policy and was entitled to the stock proceeds.
Greathouse, 823 N.E.2d at 544. If Ohio’s demutualization statute applied here, this case would
be just like Greathouse.
D. The “New Contract Claims” Fail for Multiple Reasons.
1. The plaintiffs do not have standing to pursue the “New Contract
Claims.”
The “New Contract Claims” are purportedly brought to remedy alleged injuries suffered
by City employees enrolled in group health insurance policies that plaintiffs assert were
“originally issued after the Merger.” Compl. ¶ 179 (emphasis added). In this regard, the
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Complaint identifies employees classified as participants in group identification numbers
H25993-008, H25993-013 and H25993-018 as having coverage that “began” after the merger.
Compl. ¶ 19. No plaintiff was in any of those subgroups.24 Consequently, none of the plaintiffs
has suffered the injury complained of in the New Contract Claims.
In Stapp, et al. v. Broadwing, Inc., et al., 2009 WL 530100 (S.D. Ohio Feb. 27, 2009),
this Court recently dismissed a case brought by the same lawyers representing plaintiffs here because
the plaintiffs in that case had no standing to pursue the claims asserted and, therefore, the Court
lacked subject matter jurisdiction over the case. Stapp, 2009 WL 530100, at *2 (“because those
injured, according to the Amended Complaint, were individuals insured under a fully-insured
Group Policy, and because none of the named Plaintiffs are in that category, the Court finds that
Plaintiffs cannot establish an ‘injury in fact’ and have no standing to pursue the claims asserted
in the Amended Complaint.”). The New Contract Claims are just like the dismissed claims in
Stapp. As in Stapp, no plaintiff here is in the group of City employees covered by a “new
contract” who allegedly sustained an injury when Anthem Insurance issued stock to the City.
Summary judgment should be entered against plaintiffs on all of the New Contract Claims
because plaintiffs lack standing to pursue these claims under Article III of the Constitution.
24
The Complaint admits that Matacia and Espel were in group number H25993-017 prior to the merger (Compl.
¶¶ 10-11, 35) and contains no allegations about that group being subject to any contract issued after the merger.
Moreover, Matacia and Espel do not allege that they were in any of the three employee subgroups that could
advance the New Contract Claims. The Complaint states that Mell and Wilmes were in only group H17955-010
(id. ¶¶ 8-9, 33-34) (known as an “HMP” group) and that they received coverage as enrollees in that group prior
to the merger. Id. ¶ 8-9. This, of course, is not one of the three employee subgroups associated with the New
Contract Claims. Mell and Wilmes attempt to distinguish themselves from Espel and Matacia by claiming that
even though their HMP group admittedly existed prior to the merger, it was also subject to a post-merger “1995
Group Contract.” Id. ¶¶ 67, 72-76. As shown below, the “1995 Group Contract” did not exist.
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2. The “New Contract Claims” have no factual basis.
The New Contract Claims allege that certain City employees who received their benefits
pursuant to “new” City group contracts allegedly entered into after the merger were entitled to
demutualization proceeds because their membership in Anthem Insurance derived directly from
their status as enrollees under a post-merger contract. To survive summary judgment on the
“New Contract Claims,” plaintiffs must come forward with evidence that the City was a “new
customer” of CIC following the merger. They cannot do that. It is beyond dispute that the City
was a longstanding group customer of CMIC at the time of the merger and continued to renew,
amend or replace its group contracts following the merger. The history of the City’s contract
arrangement with CMIC and, later, CIC, is beyond dispute. The City’s status as a group
policyholder was continuous from 1986 through the date of the demutualization and beyond.
Appx. Tab 3 (Schell Decl.) ¶¶ 4, 6, 10.
a. There is no evidence that the City was issued a Guaranty
Policy for Future Groups.
Anthem Insurance did not issue a “Guaranty Policy for Future Groups” to the City
because the City was a member of CMIC prior to the merger and not a new customer of CIC
post-merger. No such Guaranty Policy has been located (Compl. ¶ 75) because it does not exist.
Plaintiffs have received written discovery and testimony demonstrating the City’s
contract history. That history is set forth in the “Undisputed Facts” section of this Memorandum
on pages 8-10 in Section II.D. Contrary to the evidence produced in discovery, plaintiffs boldly
assert the existence of so-called “new” post-merger contracts between the City and CIC –
namely, the “1995 Group Contract,” “1998 HOT Rider Contract” and the “Missing Contracts”
(collectively, the “Fictitious Contracts”). There is no evidence that the Fictitious Contracts ever
existed or that there was any break in the City’s coverage during the relevant time period. The
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fact that the City may have purchased different products from year to year does not affect the
continuity of the underlying contract or mean that the City entered into “new” contracts. For
example, the City’s decision to offer human organ transplant coverage to certain employees
beginning in 1998 did not generate a new contract between the City and CIC. Rather, the
funding arrangement for the City’s existing human organ transplant coverage was revised via the
annual amendment to the Alternate Financing Amendment Schedule. Appx. Tab 3 (Schell
Decl.), ¶ 5. The Guaranty Policy applicable to the City is clear that all renewals, amendments or
replacements are considered part of the “Community Contract” that conferred upon the City its
status as a member of Anthem Insurance. Appx. Tab 1 (Umstead Decl.), Ex. B at
WP-M 00012736.
b. Plaintiffs’ unsupported assertion that Ms. Wilmes received a
Certificate of Membership contradicts their own theory of the
case.
Without any evidence that any of the Fictitious Contracts exist (or ever did), plaintiffs
have posited a speculative and wholly improbable scenario for how they obtained membership
rights in Anthem Insurance. According to plaintiffs, one enrollee under the City’s retiree benefit
plan, the deceased Frieda Wilmes, received a Certificate of Membership in Associated “at some
point in time after the merger.” Compl. ¶ 72. The Complaint does not set forth the date or the
circumstances under which Wilmes allegedly received that Certificate.25 The Certificate does
not bear Wilmes’ name or any other identifying information tying it to the City’s contract.
Plaintiffs apparently have not located any other enrollee who received such a Certificate.
Nonetheless, say plaintiffs, that single Certificate “proves” that Wilmes became a member of
25
Wilmes obviously is unavailable to provide evidence about her alleged receipt of the Certificate and she
provided no admissible evidence on this subject during her life. Her executrix, Claudette Schenck, was unable to
testify to any specific details about the Certificate. Deposition of Claudette Schenck (Appx. Tab 15), pp. 54-55.
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Associated and that other enrollees must have received similar certificates and became members
too. Compl. ¶¶ 73-76. Unfortunately for plaintiffs, simply saying so is not enough. Allegations
in a complaint are insufficient to defeat summary judgment. See Smith v. Transworld Sys., Inc.,
953 F.2d 1025, 1028 (6th Cir. 1992) (“the nonmoving party, in the face of a summary judgment
motion, may not rest on its pleadings but must instead come forward with some probative
evidence to support its claim.”); Farr v. Pinkerton, 1994 WL 462151, at *2 (6th Cir. Aug. 25,
1994) (“Farr’s response, in which he merely relied on the allegations contained in his complaint,
is insufficient to rebut Pinkerton’s motion for summary judgment.”).
Wilmes’ alleged receipt of a Membership Certificate is completely inconsistent with the
Complaint’s other allegations about her historical enrollment in the City’s fully-insured
Retirement HMP benefits plan. See Compl. ¶ 9. According to the Complaint, Wilmes’
enrollment in the City benefits group identified by group identification number (“GID”)
H17955010 makes her a member of the class described in subpart (a) of the class definition.
Compl. ¶ 19. Plaintiffs state that the contracts relevant to subpart (a) were in force prior to the
merger (id.) and that Wilmes was enrolled thereunder prior to the merger. Id. ¶¶ 9, 19, 34.
However, only the Ohio Law theory can apply to Wilmes’ and the other subpart (a) plaintiffs’
claims since they agree that they were enrolled under the City’s group contracts that were in
place before the merger (i.e., not a “new” contract). Notwithstanding these admissions, plaintiffs
attempt to link the post-merger New Contract Claims to Wilmes’ “receipt” of a certificate
pursuant to the non-existent “1995 Contract.” This makes no sense. Wilmes cannot fit into both
subparts of the class definition and she cannot assert both Ohio Law and New Contract Claims.
Plaintiffs’ explanation about their two alternative theories of the case makes clear that they are
mutually exclusive. Compl. ¶ 179. Wilmes cannot have been enrolled under both a pre-merger
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contract (as the Complaint alleges) and be the recipient of a Certificate allegedly issued to
enrollees in a new post-merger group to which she did not belong.26
Plaintiffs’ New Contract Claims have zero factual support. There is no proof that any
plaintiff was issued a membership certificate or that the City was issued a Guaranty Policy for
Future Groups. Accordingly, Counts One, Two, Three and Four must be dismissed.27
E. Plaintiffs Were Not Third Party Beneficiaries of Anthem Insurance’s Plan of
Conversion.
Count Five focuses on the Plan of Conversion, the document that was reviewed and
approved by Anthem Insurance’s Board of Directors, its members and the Indiana Department of
Insurance to effectuate the demutualization. Compl. ¶¶ 103, 138, 156. Plaintiffs, on the other
hand, as employees of one of Anthem Insurance’s group members, have no direct rights under
the Plan, which is not even a contract. Indeed, the Complaint makes clear that only Anthem
Insurance’s members had rights resulting from the transaction described in the Plan. Compl.
¶ 204. Because plaintiffs were not members of Anthem Insurance, as demonstrated at
paragraphs II.B.-D., supra, Count Five fails as a matter of law.
F. All Of the Tort Claims Are Time-Barred.
The remaining claims against the WellPoint Defendants – Counts Twelve, Fourteen,
Fifteen and Seventeen – all sound in tort and are barred by the applicable statute of limitations.
26
It bears noting that in July 2008, prior to Wilmes’ death, she attempted to become a party to the McAffry case
that was pending in Hamilton County Common Pleas Court. Motion to Amend Complaint (Appx. Tab 16), ¶ 1.
The proposed amended complaint filed on behalf of Wilmes while she was alive makes no mention of the
Certificate or Wilmes’ alleged receipt thereof.
27
Furthermore, although plaintiffs don’t explicitly say so, part of their class (subparagraph (b)) has only New
Contract Claims, and their failure equals the end of the road for those class members. Based upon the class
definition, they cannot bring the Tort Claims claiming that they were wrongfully deprived of demutualization
compensation without an underlying legal entitlement thereto.
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Under Ohio law, the statute of limitations pertaining to Counts Fifteen and Seventeen,
breach of fiduciary duty and fraud, is four years. R.C. § 2305.09; Cleveland Indus. Square, Inc.
v. Dzina, 2006 WL 562146, at *9 (Ohio Ct. App. Mar. 9, 2006) (claims for breach of fiduciary
duty are governed by a four-year statute of limitations); Keisler v. FirstEnergy Corp., 2006 WL
259639, at *4 (Ohio Ct. App. Feb. 3, 2006) (same for fraud claims). The acts underlying these
two claims are Anthem Insurance’s representations to the City that it would receive
compensation from the demutualization, alleged concealment of plaintiffs’ entitlement thereto
and subsequent distribution of stock to the City. All of these representations and events took
place during 2001 when Anthem Insurance was communicating with its members, the various
departments of insurance and the public about the demutualization and information about the
transaction was widely available. Anthem Insurance communicated with regulators during 2001
about the demutualization. See Appx. Tab 12 (Maginn Decl.), ¶ 3; Appx. Tab 5 (Miller Decl.),
¶¶ 5-6. The Indiana Department held a public hearing on October 2, 2001 at which the Ohio
membership issue challenged by plaintiffs’ claims was discussed. Appx. Tab 5 (Miller Decl.),
¶ 6. The City received the stock in December 2001. Compl. ¶ 158. The City disclosed its
receipt and sale of the Anthem stock, as well as the amount of the sale and net gain, in its 2003-
2004 budget which was signed on December 19, 2002, and publicized in The Cincinnati Post
that same day. Compl. ¶¶ 167-168, Ex. AA.
Plaintiffs’ original complaint was filed on October 15, 2008.28 Counts Fifteen and
Seventeen should be dismissed because they are untimely.
28
October 15, 2008 is the date this case was filed in federal court. Mr. Mell previously pursued similar claims in
the Hamilton County lawsuit filed nearly two years earlier on December 19, 2006.
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Plaintiffs cannot save either of these claims by arguing that they were unaware that the
alleged breach or fraud had occurred until some later point. Ohio law is clear that “[a] cause of
action for breach of fiduciary duty arises when the act or commission constituting the breach of
fiduciary duty occurred.” Cleveland Indus. Square, Inc., at *9 (citing Helman v. EPL Prolong,
Inc., 743 N.E.2d 484, 497 (Ohio Ct. App. 2000) (emphasis added)). The “discovery rule” set
forth in R.C. 2305.09 is limited to the circumstances recited by that provision and does not toll
the statute of limitations for a breach of fiduciary duty claim. Id.; Investors REIT One v. Jacobs,
546 N.E.2d 206, 211 (Ohio 1989) (“[t]he legislature’s express inclusion of a discovery rule for
certain torts arising under R.C. 2305.09 … implies the exclusion of other torts arising under the
statute”); Herbert v. Banc One Brokerage Corp., 638 N.E.2d 161, 164 (Ohio Ct. App. 1994)
(“the discovery rule does not apply to appellants’ allegations of negligence and breach of
fiduciary duty which fall outside the express discovery rule”). Because plaintiffs allege that the
breach occurred in December 2001, Count Fifteen for breach of fiduciary duty is time-barred.
Fraud claims accrue when a plaintiff discovers or, “in the exercise of reasonable care,
should have discovered the complained of injury.” Investors REIT One, 546 N.E.2d 206 at 209;
Keisler, 2006 WL 259639, at *4. In light of the numerous public sources of information related
to the demutualization, plaintiffs knew or should have known about their claims well before
December 2003, which is the latest plaintiffs could have learned of the alleged fraud for that
claim to be timely filed in this lawsuit.
The torts underlying plaintiffs’ two aiding and abetting claims – breach of fiduciary duty
and conversion by the City – are governed by the same four-year statute of limitations set forth
above. R.C. § 2305.09. Any alleged aiding and abetting by the WellPoint Defendants must have
occurred at the time of the City’s misconduct. See Hardin v. Reliance Trust Co., 2006 WL
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2850455, at *11 (N.D. Ohio Sept. 29, 2006) (aiding and abetting claim with “same factual basis”
as underlying claim was time-barred under same statute of limitations).
G. Even If Deemed Timely, The Tort Claims Have No Merit.
1. Count Fifteen for breach of fiduciary duty should be dismissed
because Anthem Insurance did not owe plaintiffs any duty, fiduciary
or otherwise, regarding the demutualization.
The Complaint alleges that Anthem Insurance breached a fiduciary duty to plaintiffs by
“failing to inform them of their entitlement to demutualization compensation”
(Compl. ¶ 297);
“failing to inform them of the form of compensation to which each was entitled
and the approximate value thereof” (id.);
“making representations to and informing the City that approximately 870,021
shares of Anthem common stock was owed to the City as demutualization
compensation” (id. ¶ 298); and
“distributing to the City approximately 870,021 shares of Anthem common
stock ….” Id. ¶ 299.
Plaintiffs contend that the source of the alleged fiduciary duty purportedly breached by
Anthem Insurance is Revised Code § 3913.22(D), dealing with the demutualization of Ohio
mutual insurers. Id. ¶¶ 295-296. This, of course, is the same source of the alleged contractual
duties that the WellPoint Defendants purportedly breached according to Counts Eight, Nine and
Ten. Count Fifteen thus repackages as a fiduciary wrong the same contract breach alleged in
Counts Eight through Ten. It thus is wholly subsumed by the merits of the breach of contract
claims against the WellPoint Defendants and fails for the same reasons.
Count Fifteen’s assertion that Anthem Insurance breached a fiduciary duty fails as a
matter of law for additional reasons. Under Ohio law, a breach of fiduciary duty claim requires
(1) the existence of a duty arising from a fiduciary relationship; (2) failure to observe that duty;
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and (3) injury that proximately results. See Strock v. Pressnell, 527 N.E.2d 1235, 1243 (Ohio
1988).
Plaintiffs merely assert the existence of a fiduciary duty owed to them by Anthem
Insurance. Simply alleging that a fiduciary duty existed does not make it so. The Ohio Supreme
Court has noted that a “fiduciary relationship is one in which special confidence and trust is
reposed in the integrity and fidelity of another and there is a resulting position of superiority or
influence, acquired by virtue of this special trust.” In re Termination of Employment of Pratt,
321 N.E.2d 603, 609 (Ohio 1974).
The relationship between plaintiffs and Anthem Insurance did not give rise to fiduciary
duties in any respect. Plaintiffs were enrolled in employer-sponsored health care benefit plans
provided by the City. Thus, plaintiffs had no relationship, contractual or otherwise, with Anthem
Insurance. Plaintiffs’ only connection to any of the WellPoint Defendants was based on the
City’s contractual dealings with CIC, the Ohio stock insurance company formed in connection
with the 1995 merger. But CIC’s contractual relationship with the City does not create any
fiduciary duty of any kind to anyone. See Blon v. Bank One, 519 N.E.2d 363, 367 (Ohio 1988)
(“Ordinarily in business transactions where parties deal at arm’s length, each party is presumed
to have the opportunity to ascertain relevant facts available to others similarly situated and,
therefore, neither party has a duty to disclose material information to the other.”); Shaver v.
Standard Oil Co., 623 N.E. 2d 602, 609 (Ohio Ct. App. 1993) (“A contractual relationship alone
does not automatically create a fiduciary duty.”).
Furthermore, the WellPoint Defendants had no duty to monitor the City’s use of the
consideration to which it was entitled. Daniels v. Bursey, 2003 WL 22053580, at * 2 (N.D. Ill.
Sept. 3, 2003). In Daniels, ERISA plan participants complained that the plan did not properly
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credit the proceeds it received from a demutualizing insurer. The court described plaintiffs’
claim for breach of fiduciary duty as “a novel claim based on an insurance company’s alleged
duty to monitor the financial dealings of its policyholders” and dismissed it because it was
“based on a non-existent legal duty to inquire into how an insurance policyowner plans to
allocate proceeds from its insurance policies.” Id. The allegations comprising plaintiffs’ breach
of fiduciary duty claim here are akin to a requirement that the WellPoint Defendants had a duty
to police their members’ treatment of the demutualization proceeds. Daniels makes clear that no
such duty existed.
2. Count Seventeen for concealment/fraud is defective.
In Count Seventeen, plaintiffs allege that the WellPoint Defendants violated their duty to
disclose to plaintiffs that they were entitled to demutualization proceeds and instead falsely
represented to the City that it would receive such proceeds. See Compl. ¶¶ 309-311.29
For plaintiffs to recover for fraud under Ohio law, they must prove the following six
elements:
(a) a representation or, where there is a duty to disclose, a concealment of fact,
(b) which is material to the transaction at hand, (c) made falsely, with knowledge
of its falsity, or with such utter disregard and recklessness as to whether it is true
or false that knowledge may be inferred, (d) with the intent of misleading another
into relying upon it, (e) justifiable reliance upon the representation or
concealment, and (f) an injury proximately caused by the reliance.
Graham v. American Cyanamid Co., 350 F.3d 496, 507 (6th Cir. 2003).
Plaintiffs’ concealment/fraud claim fails on the merits for two separate reasons. First,
plaintiffs cannot demonstrate that Anthem Insurance’s representation “concerning [the City’s]
entitlement to compensation in the event of a demutualization” (Compl. ¶ 310) was “made
29
WellPoint and CIC made none of the disclosures regarding the demutualization − Anthem Insurance alone was
responsible for those communications.
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falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether
it is true or false that knowledge may be inferred” as required by Ohio law. Anthem Insurance
represented only that the City would receive a distribution of value in the demutualization
because it was a member of Anthem Insurance. That membership determination was based upon
Anthem Insurance’s understanding and construction of its own membership structure and rules,
which had been approved by the Ohio Department in 1995 and by the Indiana Department of
Insurance throughout the demutualization process. There is no evidence that Anthem
Insurance’s representations about the membership status of former members of CMIC (including
the City) were false or that Anthem Insurance knew or had reason to believe they were false.
Anthem Insurance’s communication of its legitimate and government-sanctioned position on the
interpretation of its own membership rules does not give rise to a claim for fraud. See Dana
Corp. v. Blue Cross & Blue Shield Mut. of N. Ohio, et al., 1988 WL 156334, at *3 (N.D. Ohio
Nov. 30, 1988) (citing Louisiana Power and Light Co. v. United Gas Pipe Line Co., 642 F.
Supp. 781, 804 (E.D. La. 1986) (distinguishing legitimate right to take a position on the proper
interpretation of a contract from fraudulent representation that such interpretation was correct
despite judicial interpretation to the contrary)). Here, not only has there never before been a
conflicting interpretation raised, both regulators reviewed the disclosures that were made to
members like the City in connection with those transactions and determined that the
representations contained within them were accurate.
The second defect in plaintiffs’ fraud claim is that all of the alleged “fraudulent
misrepresentations” cited by plaintiffs involve statements made by Anthem Insurance to the City
and others, but not to plaintiffs themselves. Plaintiffs concede that the representations at issue
were contained in materials that they did not receive because those materials were sent only to
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members of Anthem Insurance. Compl. ¶¶ 111, 149. Statements to third parties cannot provide
a basis for plaintiffs to argue that they justifiably relied on those statements or were injured by
those statements. Lin v. Gatehouse Constr. Co., 616 N.E.2d 519, 524 (Ohio Ct. App. 1992)
(fraud claim dismissed where representations were not made directly to plaintiffs). And
plaintiffs certainly cannot pursue a fraud claim on behalf of the City, which has not asserted any
type of claim against the WellPoint Defendants. Because plaintiffs have no evidence supporting
any of the six elements of their “concealment/fraudulent misrepresentation/constructive fraud”
claim, summary judgment is appropriate.
3. The aiding and abetting claims fail because there are no underlying
torts; moreover, plaintiffs cannot come forward with evidence to
support these claims.
Count Twelve asserts a claim for aiding and abetting the City’s alleged acts of
conversion. See Compl. ¶¶ 269-274. Count Fourteen asserts a claim for aiding and abetting the
City’s alleged breaches of fiduciary duty. See id. ¶¶ 288-293. The purported torts underlying
both of these claims are the City’s receipt of Anthem stock, subsequent sale of that stock and
retention of stock sale proceeds.
The Ohio Supreme Court has not recognized this type of aiding and abetting liability. Cf.
Federated Mgmt. Co. v. Coopers & Lybrand, 738 N.E.2d 842, 853 (Ohio Ct. App. 2000) (“Ohio
does not recognize a claim for aiding and abetting common-law fraud”); Pavlovich v. Nat’l City
Bank, 435 F.3d 560, 570 (6th Cir. 2006) (“It is unclear whether Ohio recognizes a common law
cause of action for aiding and abetting tortious conduct.”); but see Aetna Cas. & Sur. Co. v.
Leahey Constr. Co., 219 F.3d 519, 533 (6th Cir. 2000) (“[W]e conclude that the Supreme Court
of Ohio would recognize aiding and abetting liability if squarely faced with the issue …”). But
even if Ohio law recognized this kind of aiding and abetting claim, for the reasons discussed
supra, Anthem Insurance’s issuance of stock to the City was proper and in compliance with all
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requirements of the demutualization.30 The tort of aiding and abetting has no application in the
absence of tortious conduct by the principal actor – here, the City. Great Cent. Ins. Co. v.
Tobias, 524 N.E.2d 168, 172 (Ohio 1988) (affirming grant of summary judgment where principal
actor did not breach duty of care). Because, as set forth in the City’s Motion for Summary
Judgment, there was no wrongful conduct by the City for the WellPoint Defendants to aid and
abet, Counts Twelve and Fourteen fail as a matter of law.
Furthermore, plaintiffs cannot establish knowledge on the part of any of the WellPoint
Defendants that the City was engaged in any alleged tortious conduct or that any of the
WellPoint Defendants assisted the City in any allegedly wrongful conduct, as is required to
establish a claim for civil aiding and abetting. See Kimble Mixer Co. v. Hall, 2005 WL 435148,
at *5 (Ohio Ct. App. Feb. 22, 2005) (affirming dismissal of civil aiding and abetting claims
based on plaintiffs’ failure to come forward with evidence to support either the knowledge or
“substantial assistance” elements).
III. CONCLUSION
For the foregoing reasons, the Court should enter summary judgment for the WellPoint
Defendants and against plaintiffs on Counts One, Two, Three, Four, Five, Eight, Nine, Ten,
Twelve, Fourteen, Fifteen and Seventeen of the Complaint.
30
Furthermore, there was nothing wrongful about allowing the City to determine the appropriate disposition of the
stock it received. See, Daniels, 2003 WL 22053580, at * 2.
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Respectfully submitted,
BAKER & DANIELS LLP
s/ Paul A. Wolfla
Christopher G. Scanlon (pro hac vice)
Paul A. Wolfla
Anne K. Ricchiuto (pro hac vice)
BAKER & DANIELS LLP
300 North Meridian Street, Suite 2700
Indianapolis, IN 46204-1782
Tel: (317) 237-0300
christoper.scanlon@bakerd.com
anne.ricchiuto@bakerd.com
Glenn V. Whitaker (0018169)
Kent A. Britt (0068182)
Vorys, Sater, Seymour and Pease LLP
Suite 2000, Atrium Two
221 East Fourth Street
Cincinnati, OH 45202
Tel: (513) 723-4000
gvwhitaker@vssp.com
kabritt@vssp.com
Robert N. Webner (0029984)
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, OH 43216
Tel: (614) 464-6400
rnwebner@vssp.com
Attorneys for Defendants WellPoint, Inc., Anthem
Insurance Companies, Inc., and Community
Insurance Company
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CERTIFICATE OF SERVICE
The undersigned hereby certifies that, on this 28th day of September, 2009, a true and
correct copy of the foregoing WellPoint Defendants’ Motion for Summary Judgment and Brief
in Support was filed via the ECF filing system:
Eric H. Zagrans
Zagrans Law Firm LLC
474 Overbrook Road
Elyria, OH 44035
eric@zagrans.com
Dennis P. Barron
582 Torrence Lane
Cincinnati, OH 46208
DennisPBarron@aol.com
Alphonse A. Gerhardstein
Gerhardstein & Branch Co., L.P.A.
432 Walnut Street, Suite 400
Cincinnati, OH 45202
agerhardstein@gbfirm.com
Terrance A. Nestor, Esq.
CITY OF CINCINNATI SOLICITOR’S OFFICE
801 Plum Street, Room 214
Cincinnati, OH 45202
terry.nestor@cincinnati-oh.gov
Michael F. Becker
BECKER & MISHKIND CO., L.P.A.
1660 West 2nd Street, Suite 660
Cleveland, OH 44113
mbecker@beckermishkind.com
s/ Paul A. Wolfla
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