Jorling v. Anthem, Inc.

836 F.Supp.2d 821

Jeffrey D. JORLING, On Behalf of Himself and Others Similarly Situated, Plaintiff,

v.ANTHEM, INC., (n/k/a Wellpoint, Inc.) and Anthem Insurance Companies, Inc., Defendant.

No. 1:09–cv–798–TWP–TAB.

United States District Court,

S.D. Indiana,

Indianapolis Division.

Dec. 23, 2011.

Cari C. Laufenberg, Lynn L. Sarko, T. David Copley, Keller Rohrback L.L.P., Seattle, WA, Dennis Paul Barron, Cincinnati, OH, Edward O'Donnell DeLaney, Kathleen Ann DeLaney, DeLaney & DeLaney LLC, Indianapolis, IN, Eric Hyman Zagrans, Elyria, OH, H. Laddie Montague, Jr., Neil F. Mara, Peter R. Kahana, Todd S. Collins, Berger & Montague P.C., Philadelphia, PA, Michael F. Becker, The Becker Law Firm Co., L.P.A., Cleveland, OH, for Plaintiff.

Adam K. Levin, Craig A. Hoover, Peter R. Bisio, Hogan Lovells U.S. LLP, Washington, DC, Anne Kramer Ricchiuto, Christopher G. Scanlon, Kevin M. Kimmerling, Matthew Thomas Albaugh, Paul A. Wolfla, The Law Firm of Baker & Daniels, LLP, Indianapolis, IN, for Defendant.

ENTRY ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

TANYA WALTON PRATT, District Judge.

This matter is before the Court on Defendants' Motion For Summary Judgment.¹ This class action lawsuit arises out of the demutualization of Anthem InsuranceCompanies, Inc. (“Anthem”), a transaction which involved two steps. First, Anthem's members liquidated their ownership interest in the mutual company in exchange for either stock or cash. Second, Anthem transformed into a publicly-traded company through an initial public offering (“IPO”) of shares in Anthem, Inc. (Anthem's new parent company). Notably, this lawsuit is a companion to another lawsuit that has been pending before the Court since 2005: Mary E. Ormond, et al. v. Anthem, Inc. and Anthem Insurance Companies, Inc., 1:05–cv–01908–TWP–TAB. The main difference between the two lawsuits is the type of compensation received by the former mutual members. The Ormond plaintiffs received cash; by contrast, Jeffrey Jorling and the proposed class received stock. Despite this difference, the crux of the two lawsuits is the same: plaintiffs allege they were inadequately compensated for their ownership interests in Anthem.

The genesis of this lawsuit can be traced to a ruling in Ormond. Specifically, on January 12, 2009, 2009 WL 102539, the Ormond plaintiffs were allowed to file a Fourth Amended Complaint; however, Judge Hamilton denied an amendment seeking to add a claim asserting that Defendants breached their obligations and duties to those members who elected to receive stock. On June 26, 2009, Jeffrey Jorling filed a complaint in this case.

On July 1, 2011, 799 F.Supp.2d 910 (S.D.Ind.2011), this Court issued a ruling on summary judgment in Ormond, allowing the plaintiffs' claims for breach of duty in connection with the pricing and sizing of the IPO to survive for trial, but granting summary judgment on all remaining claims. Despite its many shared similarities with Ormond, this case has distinguishing features. For the reasons explained below, Defendants' Motion for Summary Judgment [Dkt. 138] is GRANTED.

I. BACKGROUND²

A. Factual Background

Anthem demutualized in 2001, two years after Indiana adopted a new statutory scheme governing the demutualization of insurance companies. Specifically, the demutualization statutes allow an Indiana mutual insurance company to convert to a stock company through a plan of conversion, which must be proposed to and approved by both the State's Commissioner of Insurance (“Commissioner”) and two-thirds of the company's membership. Ind.Code § 27–15–1–2 et seq. The Commissioner and the Indiana Department of Insurance (“IDOI”) are tasked with gathering the expertise and information necessary to reach conclusions regarding: (1) the fairness of the amount and form of consideration to be distributed to the members, both in the aggregate and individually; (2) the compliance of the plan with applicable state laws; (3) the overall fairness, reasonableness, and equity of the plan to the members; (4) whether policyholders would be prejudiced by a conversion; and (5) whether the total consideration provided to extinguish the member's interests is equal to or greater than the surplus of the converting mutual company. Ind.Code § 27–15–4–8. A public hearing is required and if the Commissioner reaches a favorable conclusion regarding these five issues, she must approve the plan. If a conversion plan is approved by the Commissioner, it is then submitted to the membership for an approval vote. Ind.Code § 27–15–5–1.

Anthem Insurance is the product of numerous mergers, acquisitions, and name changes. The company history began with a merger of two Indiana mutual insurance companies which formed Associated Insurance Companies, Inc. (“Associated”). Associated's bylaws provided that its membership would be comprised solely of individuals, regardless of whether the individual held a personal policy or was enrolled as a certificate holder in a group plan. Associated then merged with a Kentucky mutual insurance company, Southeastern Mutual Insurance Company (“Southeastern”), and an Ohio mutual insurance company, Community Mutual Insurance Company (“CMIC”). Both companies had bylaws defining their memberships as being comprised of individuals who were insured under individual insurance policies and those entities or groups as a whole that had purchased group policies. Therefore, unlike Associated's bylaws, under the bylaws of Southeastern and CMIC, the individuals who were the certificate holders or insured persons under group policies did not obtain membership status.

In order to protect the rights of those entities that had obtained membership through the purchase of the group policies from Southeastern and CMIC, a “Grandfather” clause was placed in the merger documents. This clause allowed those group policy purchasers (typically employers) with a pre-existing membership status to become members of Associated, so long as their insurance policies or healthcare benefits and services contracts remained in effect or were renewed, amended, or replaced without a lapse in coverage. However, new group customers (again typically employers) in Kentucky or Ohio that entered into group contracts with Associated for the first time post-merger did not become members. Instead, pursuant to Associated's bylaws, the individual enrollees under those post-merger group policies became members.

After those two mergers, Associated changed its name to Anthem Insurance. In 1997, Anthem merged with Blue Cross & Blue Shield of Connecticut, Inc. (“BCBS Connecticut”), a Connecticut mutual insurance company whose bylaws defined its membership in a manner similar to the way the merged Kentucky and Ohio companies had defined their memberships. Specifically, in the case of group polices, the “group as a whole” was recognized as a member (as opposed to each individual insured or certificate holder under a group policy). As with the prior mergers, Anthem preserved the rights of the BCBS Connecticut holders of group policies or “group as a whole” members by having them become members of Anthem Insurance, so long as the group insurance policies or healthcare benefits contracts remained in effect or were renewed, amended, or replaced without a lapse in coverage. Thus, by the time of Anthem Insurance's demutualization in 2001, it had a patchwork of members, including: (1) “Grandfathered Groups” in Kentucky, Ohio, and Connecticut; (2) individuals insured under group policies in Kentucky, Ohio, and Connecticut that were issued to new groups after the Kentucky, Ohio, and Connecticut mergers took place; and (3) persons insured under individual insurance policies in Kentucky, Ohio, and Indiana.

Anthem embarked on the demutualization process through a resolution of its Board of Directors passed on June 18, 2001. However, prior to the adoption of the resolution, Anthem and the IDOI communicatedregarding Anthems intent to demutualize. The IDOI reviewed and commented on a draft demutualization plan. Anthem employed Goldman Sachs & Co. as its financial advisor and sought assistance from other qualified accounting, actuarial, and legal experts to assist in putting together and, if passed, executing the conversion plan. On June 21, 2001, Anthem formally submitted its application for approval of a final plan of conversion (the “Plan”). At the request of the IDOI, the application was supplemented with more detail in July 2001, and the IDOI deemed the application complete on August 18, 2001.

The Plan required that the aggregate amount of consideration distributed to eligible members be equal to the “fair value” of Anthem at the time of the conversion. Article IV of the Plan set forth the manner in which Anthem would seek to determine fair value.

Article IV

Anthem Insurance has, with the assistance of its Financial Advisor and other advisors retained in connection with the Conversion and Public Offering, structured the Conversion and proposed Public Offering to provide fair value to the Eligible Statutory Members, and this Plan provides for Eligible Statutory Members to receive aggregate consideration equal to the fair value of Anthem Insurance at the time of the Conversion. In that regard, the Board has received written fairness opinions from the Financial Advisor, a qualified, independent financial advisor, confirming, subject to the limitations and qualifications in such opinions (which opinions will be reaffirmed to the Board as of the Effective Date), that: (i) the provision of aggregate consideration upon the extinguishing of Membership Interests under this Plan and Articles of Amendment is fair to the Eligible Statutory Members, as a group, from a financial point of view, and (ii) the total consideration to be paid to the Eligible Statutory Members under the Plan is equal to or greater than the statutory surplus of Anthem Insurance.

The Plan gave eligible members a choice in terms of how they would like to...