N.Y. Court Upholds Empire Blues Conversion to Profit Corporation

June 21, 2005

New York’s highest court has dismissed an attempt to block the plan to convert Empire Blue Cross and Blue Shield into a for-profit company.

The planned conversion is projected to provide the state with as much as $4 billion in revenues, funds that Gov. George Pataki and lawmakers say the state needs to pay for health programs and raises for hospital and nursing home workers.

In Consumers’ Union of the U.S., et. al. vs. The State of New York and Empire HealthChoice, Inc., (d/b/a Empire Blue Cross Blue Shield), New York’s highest court concluded that the plaintiffs’ allegations were legally insufficient to support any cause of action. The court granted the defendants’ motion to dismiss the amended complaint alleging that the conversion legislation violated the state constitution on the ground that it is a local law granting an exclusive privilege, immunity and/or franchise.

The high court also affirmed the Appellate Division’s order affirming the dismissal of all other causes of action.

“We are pleased with the court’s decision today,” said Michael A. Stocker, MD, president and CEO of WellChoice. “This resolves all legal issues pertaining to Empire’s conversion, including the appropriate use of the proceeds.”

The suit was brought in 2002, by Consumers Union, the publisher of Consumer Reports, as well as three individual Empire policyholders.

But the court rejected the plaintiffs contentions that the deal was unconstituional because it benefitted only a single insurer and that it was a breach of Empire’s directors’ fiduciary responsibilties.

“Empire has traditionally functioned as both a financing device for hospitals and a means to make economical health care available to as many New Yorkers as possible,” Judge Susan Phillips Read wrote. “The dedication of conversion assets to support public health programs and to recruit and retain health care workers is wholly consistent with these activities.”

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