Lawrence S. Herman, D.C., Nachas, Inc., Jason H. Herman, Mitchell Chiropractic Center and Thomas C. Mitchell, D.C., (together, Herman) appeal from the December 31, 2009, order of the Court of Common Pleas of York County (trial court), which sustained preliminary objections filed by Capital Blue Cross, a nonprofit Pennsylvania Corporation (Capital), and Highmark, Inc., d/b/a Highmark Blue Cross Blue Shield and Pennsylvania Blue Shield, a nonprofit Pennsylvania Corporation (Highmark), (together, the Nonprofits) and dismissed the complaints that Herman had filed against the Nonprofits. We affirm.
Herman filed complaints in the trial court, alleging that the Nonprofits: (1) violated section 5545 of the Nonprofit Corporation Law of 1988 (Nonprofit Law),
The Nonprofits filed preliminary objections, including a demurrer and an objection to Herman's standing. The trial court sustained the objections, concluding that: (1) Herman did not plead sufficient facts to show that he has been aggrieved by the Nonprofits' failure to apply their incidental profits to the operation of their corporations; (2) Herman lacked standing to bring an action for breach of contract because Herman did not refer to a contract in his complaints; (3) Herman lacked standing under section 5793(a) of the Nonprofit Law
Herman argues that the trial court erred in concluding that he lacked common
In Petty v. Hospital Service Association of Northeastern Pennsylvania, 967 A.2d 439, 447-48 (Pa.Cmwlth.2009) (en banc), appeal granted in part, ___ Pa. ___, 995 A.2d 873 (2010), this court held that policyholders and subscribers lack common law standing to challenge the validity of a nonprofit's corporate action. This court stated:
Petty, 967 A.2d at 448.
Herman argues that, in Liss & Marion, P.C. v. Recordex Acquisition Corporation, 603 Pa. 198, 983 A.2d 652 (2009), our supreme court effectively overruled Petty with regard to whether parties to a contract have common law standing to challenge the violation of a statute. We disagree.
The question before the court in Liss was whether a private cause of action for breach of an implied contract arises out of a violation of the act known as the Medical Records Act (MRA),
Based on Liss, Herman contends that he can bring a common law breach of contract action against the Nonprofits because the Nonprofit Law is incorporated into his health insurance contracts with the Nonprofits. However, in Liss, our supreme court based its holding on the fact that the MRA does not evidence any legislative intent to limit common law remedies. Here, section 5793(a) of the Nonprofit Law expressly limits who may bring an action against a nonprofit corporation challenging a corporate action.
15 Pa.C.S. § 5793(a). Thus, Liss does not effectively overrule Petty.
Herman argues that the trial court erred in concluding that he lacked standing to bring a breach of contract action because he does not refer to a contract in his complaints. Herman points out that, in Paragraph 74 of his complaint against Capital, he avers that "Policyholders and subscribers were parties to contracts for health insurance coverage with [Capital]. These contracts are in [Capital's] possession and, therefore, there is no need to attach copies of them to this Complaint." (Complaint (Capital), ¶ 74, R.R. at 26a.) In the complaint against Highmark, Herman makes the same averment in Paragraph 78. (Complaint (Highmark), ¶ 78, R.R. at 634a.) Herman also alleges in his complaints that the provisions of the Nonprofit Law are incorporated into those contracts. (Complaint (Capital), ¶ 76, R.R. at 27a; Complaint (Highmark), ¶ 80, R.R. at 634a.)
Assuming that Herman is correct that he properly identified existing contracts, i.e., his health insurance contracts and, by incorporation, the Nonprofit Law, we reiterate that section 5793(a) of the Nonprofit Law expressly limits who has standing to challenge a corporate action. Thus, even if the Nonprofit Law were incorporated into Herman's health insurance contracts, it does not confer standing on Herman to challenge the validity of a corporate action.
Herman argues that the trial court erred in concluding that he failed to plead sufficient facts to show that he is aggrieved by the Nonprofits' retention of incidental profits. Herman actually does allege that he has been harmed, severely harmed, or adversely affected by the excess surplus. (Complaint (Capital), ¶¶ 56, 79, 83, R.R. at 20a, 27a, 28a; Complaint (Highmark), ¶¶ 60, 83, 87, R.R. at 628a, 634a, 636a.) However, he does not allege precisely how he has been harmed.
In Petty, this court stated that a litigant can establish that he or she has been aggrieved by showing a substantial, direct and immediate interest in the outcome of the litigation. Petty, 967 A.2d at 448. Like Herman, Petty alleged that he had been harmed as a result of the accumulation of excess surplus. Id. This court concluded:
Petty, 967 A.2d at 448. Pursuant to Petty, then, Herman has not pled sufficient facts to establish that he is aggrieved.
Herman argues that, in Herman v. Capital Blue Cross, Inc., 927 A.2d 750 (Pa.Cmwlth., No. 542 C.D. 2003, filed July 5, 2007) (Capital I), and Herman v. Highmark, Inc., 927 A.2d 750 (Pa.Cmwlth., No. 543 C.D. 2003, filed July 5, 2007) (Highmark I), this court held that the question of standing could not be determined from the facts of record, and this is the law of the case.
In Capital I and Highmark I, this court considered the trial court's order sustaining the Nonprofits' preliminary objections to jurisdiction. This court reversed and remanded to the trial court for disposition of remaining preliminary objections, including the objection to standing. This court stated, in relevant part:
(Capital I, slip op. at 5 n. 1, R.R. at 570a; Highmark I, slip op. at 6 n. 1, R.R. at 1349a.) This court could not determine whether Herman had standing under section 5793(a) of the Nonprofit Law because, at the preliminary objection stage of the proceedings, we could consider only the well-pled facts, and the complaints did not contain averments regarding the status of subscribers and policyholders in the bylaws or the articles of incorporation of the Nonprofits.
However, on remand, the trial court held a status conference, at which the trial court granted leave to Highmark, with the concurrence of Herman, to submit supplemental exhibits to their preliminary objections, including their by-laws and their articles of incorporation. (Highmark Supplemental Exhibits, R.R. at 1490a.) The trial court then reviewed the articles of incorporation and the by-laws of both Highmark and Capital and determined that those documents did not confer sufficient status on subscribers and policyholders to give them standing to challenge corporate action under section 5793(a) of the Nonprofit Law. (Trial Court Opinion at 13-14.) Because the record before the trial court differed from the record previously before this court and because Herman did not object to the submission of the articles of incorporation and by-laws for consideration, the trial court did not violate the law of the case doctrine.
Herman argues that the trial court erred in concluding that the Nonprofits do
However, in Petty, this court rejected "Petty's contention that the trial court erred in holding that he failed to state a claim for breach of fiduciary duty for taking actions which he claims is improper governance." Petty, 967 A.2d at 449. This court reiterated that "the only parties who can maintain the action to challenge [a nonprofit's corporate action with respect to surplus] are those listed in 15 Pa.C.S. § 5793(a)." Id.
Herman finally argues that the trial court erred in concluding that he lacked standing under section 5793(a) of the Nonprofit Law. Herman asserts that, under White v. Associates in Counseling and Child Guidance, Inc., 767 A.2d 638, 642 (Pa.Cmwlth.2001), any person with a special relationship to the nonprofit corporation has standing to challenge a corporate action. Herman contends that he has a special relationship to the Nonprofits because: (1) as a matter of law, subscribers are the primary reason for the existence of the Nonprofits; (2) the articles of incorporation and/or by-laws establish that subscribers are the primary reason for the existence of the Nonprofits; (3) the public pronouncements of the Nonprofits establish that the surplus exists for the subscribers and policyholders; and (4) the Nonprofits have indicated in other cases that its subscribers are members of the nonprofit corporation.
However, in Ciamaichelo, this court stated that, under White, the word "otherwise" in section 5793(a) refers to classes of persons of the same general nature as a member, director, member of an other body or officer. Ciamaichelo, 928 A.2d at 411. This court then examined the articles of incorporation of the nonprofit to determine whether the articles place subscribers and policyholders in the same class as members, directors, other body members and officers. Id. at 411-14. We held that the articles placed subscribers, but not policyholders, in the same class. Id. In Petty, this court again examined the articles of incorporation of a nonprofit to determine standing under section 5793(a), and this court concluded that the articles did not place the subscribers in the same class as members, directors, other body members and officers. Petty, 967 A.2d at 445.
Here, then, the question under section 5793(a) is not whether the subscribers are
Accordingly, we affirm.
Judges COHN JUBELIRER, LEAVITT, and BROBSON did not participate in the decision in this case.
AND NOW, this 4th day of November, 2010, the order of the Court of Common Pleas of York County, dated December 31, 2009, is hereby affirmed.
15 Pa.C.S. § 5545 (emphasis added).