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STAMP v. INAMED CORP.

October 18, 1991

ZACK STAMP, Director of the State of Illinois and Liquidator of Cooperative Health Plan, Inc. and the ILLINOIS HEALTH MAINTENANCE ORGANIZATION GUARANTY ASSOCIATION, Plaintiffs,
v.
INAMED CORPORATION, a Florida corporation, Defendant


Charles P. Kocoras, United States District Judge.


The opinion of the court was delivered by: KOCORAS

BACKGROUND

 The plaintiffs are Zack Stamp, Illinois' Director of Insurance and liquidator of Cooperative Health Plan, Inc. ("Director"), and the Illinois Health Maintenance Organization Guaranty Association. Plaintiffs have brought a two count breach of contract action on behalf of Cooperative Health Plan, Inc. ("Cooperative") against the defendant, Inamed Corporation ("Inamed"). In response, Inamed has moved to dismiss both counts pursuant to 12(b)(6).

 On June 15, 1987, Inamed, its subsidiary CN Acquisition Corporation ("Cooperative-NowCare"), and John Hancock Health Plans, Inc. ("Hancock") entered into an agreement (the "JHHI Agreement") regarding Hancock's wholly-owned subsidiary, Cooperative Health Plan, Inc. ("Cooperative"). Under the JHHI Agreement, Hancock agreed to transfer ownership and control of Cooperative to Inamed. The actual transfer of ownership was effected by means of an agreement (the "Merger Agreement"). The Merger Agreement provided for the merging of Cooperative-NowCare (the subsidiary of Inamed) and Cooperative (then the subsidiary of Hancock). On July 24, 1987, Cooperative-NowCare was merged into Cooperative. As a result, Inamed became the sole shareholder of the surviving entity, Cooperative.

 In Section 11(a) of the JHHI Agreement, Inamed agreed that:

 (a) On and for two years following the Merger Date [July 24, 1987], Inamed shall make capital contributions and/or subordinated loans to Cooperative-Nowcare in such amounts as are necessary (a) in order for Cooperative-Nowcare to be in compliance with all financial requirements established by Illinois statute or by the Illinois Department of Insurance and which are applicable to health maintenance organizations and . . . .

 (c) For two years following the Merger Date, Inamed shall use its best efforts to take all such other action as may be necessary to prevent Cooperative-Nowcare from losing its license to operate as a health maintenance organization in Illinois.

 Furthermore, the Merger Agreement provided that as of July 24, 1987, Cooperative, as the surviving corporation, was to possess "all rights, privileges, power and franchises" of the merging entities. Both agreements provide that Illinois law would govern the contractual relationship between the parties.

 In August 1988, the Circuit Court of Cook County, Illinois found Cooperative to be insolvent, and in March, 1989 ordered Cooperative liquidated. Subsequent to this order, Director brought suit on behalf of Cooperative. Count I alleges that Inamed breached paragraph 11(a) and 11(c) of the JHHI Agreement by allowing Cooperative to become insolvent.

 Count II alleges breach of contract but is based on another set of circumstances. In February 1988, prior to the Circuit Court's actions, Cooperative agreed to purchase its subsidiary's assets and liabilities. In February, Cooperative applied to the Illinois Department of Insurance for approval of its Purchase Agreement with its subsidiary. Cooperative's filed application stated that Inamed "will make a loan of $ 500,000 to Cooperative in return for a Subordinated Promissory Note." This subordinated note was attached to the application. Count II of plaintiffs' complaint alleges that Inamed breached this promise to provide Cooperative a $ 500,000 loan.

 Inamed raises two arguments in support of its dismissal motion. First, it argues that Cooperative has no standing to sue because it was neither a party nor a third party beneficiary to the JHHI or Merger agreements. Second, Inamed also contends that Cooperative's suit must be dismissed because it is the equivalent of Inamed suing itself since Cooperative is Inamed's wholly-owned subsidiary. Defendant relies on these arguments in support of its 12(b)(6) motion.

 DISCUSSION

 1. Rule 12(b)(6) Standard

 The moving party must meet a high standard to have a claim dismissed pursuant to Rule 12(b)(6). The purpose of a 12(b)(6) motion is to test the sufficiency of the complaint, not to decide the merits of the case. The complaint's allegations should be construed liberally, and it "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which entitle him to relief." Conley v. Gibson, 355 U.S. 41, 46 ...


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