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Cima v. Wellpoint Health Networks

October 22, 2008

GREG CIMA, ET AL., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
WELLPOINT HEALTH NETWORKS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on Defendants's Motion for Partial Summary Judgment on Count III of Plaintiffs's First Amended Class Action Complaint (Doc. 179). Plaintiffs have Responded (Doc. 207) and Defendants have Replied (Doc. 209).

BACKGROUND

The Court has outlined the nature of the claims and the procedural history of this case in previous orders, and it is unnecessary to repeat that recitation in detail here. Accordingly, the Court merely will state a few salient aspects of this case that are pertinent to this Order. Plaintiffs are former insureds of Defendant RightCHOICE Insurance Company and/or its parent corporation Defendant RightCHOICE Managed Care, Inc. (hereinafter, collectively "RightCHOICE"). Plaintiffs allege that in 2001 Defendant WellPoint Health Networks, Inc., ("WellPoint") acquired RightCHOICE through a merger from which RightCHOICE emerged as a wholly-owned subsidiary of WellPoint. Plaintiffs contend that WellPoint acquired RightCHOICE for the purpose of causing the latter to withdraw from the Illinois insurance market, thereby forcing RightCHOICE insureds to convert to more expensive policies issued through defendants Unicare National Services, Inc., Unicare Illinois Services, Inc., and Unicare Health Insurance Company of the Midwest (hereinafter, collectively, "Unicare"), which are Illinois subsidiaries of WellPoint. Plaintiffs's operative complaint asserts claims for breach of contract and unfair trade practices in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILCS 505/1-505/12.

Defendants have moved for summary judgment as to Plaintiffs's claims for breach of contract, which allege that the withdrawal of RightCHOICE from the Illinois insurance market constitutes a breach of the renewability provisions of Plaintiffs's policies with RightCHOICE. WellPoint and Unicare contend that as non-signatories to the RightCHOICE policies they cannot be held liable for breach of the policies. Plaintiffs have responded that Wellpoint and Unicare assumed the contractual duties of the RightCHOICE policies by way of the corporate merger.

RightCHOICE contends that there was no breach of the policies because RightCHOICE's market withdrawal was proper under relevant policy terms, which incorporated provisions of the Illinois Health Insurance Portability and Accountability Act, 215 ILCS 97/1-97/99 (HIPAA). Plaintiffs counter that RightCHOICE never really withdrew from the Illinois market, and therefore breached its contractual duty to renew Plaintiffs's policies.

ANALYSIS

Summary judgment is proper where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Spath v. Hayes Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir. 2000). The Court construes all facts in the light most favorable to the nonmoving party and draws all justifiable inferences in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Spath, 211 F.3d at 396.

The moving party has the burden of establishing that there is no genuine issue of material fact. Celotex Corp., 477 U.S. at 323. Where the moving party fails to meet its strict burden of proof, a court cannot enter summary judgment for the moving party even if the opposing party fails to present relevant evidence in response to the motion. Cooper v. Lane, 969 F.2d 368, 371 (7th Cir. 1992). If it meets this burden, the nonmoving party must set forth facts that demonstrate the existence of a genuine issue of material fact. Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 322-26; Johnson v. City of Fort Wayne, 91 F.3d 922, 931 (7th Cir. 1996). The nonmoving party must do more than cast "some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir. 2000). Rather, the nonmoving party must demonstrate to the Court that the evidence is such that a reasonable jury could return a verdict in his favor. Anderson, 477 U.S. at 248; Insolia v. Phillip Morris, Inc., 216 F.3d 596 (7th Cir. 2000). Mere assertions of a factual dispute unsupported by probative evidence will not prevent summary judgment. Anderson, 477 U.S. at 248-250.

I. Breach of Contract Claims Against Unicare and Wellpoint

As a general rule, one who is not a party to a contract cannot be held liable for its breach. Gallagher Corp. v. Russ, 721 N.E.2d 605, 612 (Ill. App. Ct. 1999). While admitting they were not parties to the contract, Plaintiffs claim Defendants Unicare and Wellpoint are liable for breach as RightCHOICE's successors. See 215 ILCS 5/166; 805 ILCS 5/11.50(a)(5); Gray v. Mundelein Coll., 695 N.E.2d 1379, 1388 (Ill. App. Ct. 1998).

A. Successor Liability

Wellpoint became the parent company to RightCHOICE as a result of a "triangular merger." Wellpoint created a wholly-owned subsidiary, RWP Acquisition Corp. (RWP), solely for purposes of the merger. Wellpoint caused RWP to merge with Missouri Care, the parent company of RightCHOICE. Under the terms of merger agreement, Missouri Care emerged as the surviving corporation. In this way, Missouri Care became a wholly-owned subsidiary of Wellpoint, with RightCHOICE remaining a wholly-owned subsidiary of Missouri Care. Defendants claim that no entity ever succeeded to RightCHOICE's obligations, as RightCHOICE was not a party to the merger.

Under the Illinois Insurance Code, Delaware law determines the effect of the merger. See 215 ILCS 5/166(2)(a). Delaware law provides that following a merger "all debts, liabilities and duties of the respective constituent corporations shall thenceforth attach to said surviving or resulting corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it." 8 Del.C. ยง 259(a). Therefore, Missouri Care, the surviving corporation, assumed the contractual liabilities of RWP, the holding company created by Wellpoint for purposes of the merger. However, Plaintiffs have not articulated to the Court how this merger resulted in the assumption by any other entity of RightCHOICE's contractual liabilities. While it is true that, through the merger, RightCHOICE became a subsidiary of Wellpoint, it is also true that a corporation is ordinarily not liable for the legal obligations of its subsidiaries. U.S. v. Bestfood, 524 U.S. 51, 61-2 (1998). ...


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