Opinion ID: 1981302
Heading Depth: 1
Heading Rank: 2

Heading: Empire's Original Restructuring Plan

Text: Notwithstanding state subsidies and other favorable legislative action, Empire lost roughly $800 million and half its subscriber base in the 10-year period from 1986 to 1995. In light of its deteriorating prospects, Empire decided to restructure. Under Empire's original restructuring plan, substantially all its assets, liabilities and businesses were to be transferred to wholly owned for-profit subsidiaries in exchange for 100% of the subsidiaries' outstanding and newly issued common stock. This transfer was to be followed by an initial public offering in which a portion of the stock would be sold to the public. Proceeds from the offering and all outstanding stock, approximating 100% of the value of the not-for-profit's assets, would then be transferred from old Empire to a newly formed tax-exempt charitable foundation dedicated to promoting the availability and accessibility of high quality healthcare and related services to the people of the State of New York. Old Empire would dissolve and new Empire would continue to offer health insurance, but as a for-profit corporation with greater potential for becoming and remaining competitive. Empire's Board of Directors looked at other options, including dissolving or merging with another entity, but determined that restructuring along these lines was more desirable. [6] This proposed restructuring was subject to the Not-For-Profit Corporation Law's provisions governing the disposition of a corporation's assets. For example, under N-PCL 510 and 511, Type B not-for-profit corporations may sell all their assets with Supreme Court approval and on notice to the Attorney General. After dissolution, [a]ssets received and held by the corporation . . . shall be distributed to one or more domestic or foreign corporations or other organizations engaged in activities substantially similar to those of the dissolved corporation . . . as ordered by the court to which such plan is submitted for approval under section 1002 (Authorization of plan) (N-PCL 1005 [a] [3] [A] [emphasis added]). Although its financial picture had brightened somewhat by the end of 1998, Empire concluded that its not-for-profit form crippled its chances to attract sufficient capital to compete effectively in New York's health care market. Without restructuring, Empire predicted serious future financial losses, and so actively pursued its restructuring plan with the Department of Insurance. Public hearings were held in 1999, and Empire formally submitted its proposed plan to the Superintendent later that year. In the fall of 1999, the Attorney General opined that Empire's restructuring would require a change in Insurance Law § 4301 (j) as well as Supreme Court and regulatory approval ( see Press Release, Sept. 1, 1999, Spitzer Airs Concerns on Blue Cross/Blue Shield Conversion, state.ny.us/press/1999/sep/sep01a_99.html> [last updated Jan. 24, 2003], cached at ; see also May 1999 Mem to Attorney General, Proposed Conversion to For-Profit Status by Empire Blue Cross and Blue Shield, in Josephson, Health Care Litigation: What You Need to Know After Pegram; Fiduciary Accountability; Recent Cases and Investigations; Pending Cases, 1216 PLI/Corp 581, 711). [7] On December 29, 1999, the Superintendent issued an opinion and decision nonetheless approving Empire's reorganization plan. Disagreeing with the Attorney General about the need for legislative action, the Superintendent opined that section 4301 (j) which prohibits the conversion of a not-for-profit health service corporation into a for-profit corporation, [was] not applicable to Empire's restructuring. According to the Superintendent, Empire's restructuring was governed under articles 71 and 74 of the Insurance Law, and was not a conversion as Empire will exchange its assets for different assets having equal value and transfer those assets to an independent entity formed to carry out not-for-profit public purposes, and would then dissolve. While Empire secured the Superintendent's approval of its restructuring plan, the Attorney General's endorsement proved more elusive. In a press release dated January 5, 2000, the Attorney General stated that he did not oppose in principle Empire's wish to convert, but was legally bound to protect the public interest when an organization that has enjoyed millions in state subsidies seeks to change its mission to earning profits for private owners ( see Statement by Attorney General Eliot Spitzer Regarding the Proposed Empire Blue Cross/Blue Shield Conversion, [last updated Jan. 24, 2003], cached at bluecross_conversion.htm> [emphasis added]). He then identified several objections to the restructuring plan approved by the Superintendent, first and foremost the legal bar of Insurance Law § 4301 (j). [8] In the end, Empire elected not to pursue reorganization under the 1999 restructuring plan approved by the Superintendent.