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District of Columbia v. Group Hospitalization and Medical Services

September 15, 2008

DISTRICT OF COLUMBIA, PLAINTIFF,
v.
GROUP HOSPITALIZATION AND MEDICAL SERVICES, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff District of Columbia ("the District") brings this action against defendants Group Hospitalization and Medical Services, Inc. ("GHMSI") and CareFirst, Inc. ("CareFirst"), alleging that defendants have willfully violated GHMSI's federal charter by operating GHMSI contrary to its public service mission and have breached GHMSI's charitable trust obligations by misappropriating its assets. (Compl. ¶¶ 27-31.) Plaintiff has filed a motion to remand the case to the Superior Court of the District of Columbia on the basis of lack of subject matter jurisdiction. For the reasons stated herein, plaintiff's motion to remand will be denied.

BACKGROUND

Defendant GHMSI is an interstate non-profit corporation with more than one million certificate holders who live and work in the District, Maryland, and Virginia. (Id. ¶ 4.) GHMSI's primary business is selling health insurance and administering health plans. (Id.)

GHMSI was created by a congressional charter in 1939. See Pub. L. No. 395, 53 Stat. 1412 (1939). The federal charter sets forth GHMSI's corporate structure and purpose. Since 1984, GHMSI has been "authorized and empowered" by its charter

(a) to enter into contracts with individuals or groups of individuals to provide for hospitalization of such individuals, upon payment of specified rates or premiums, and to issue to such individuals appropriate certificates evidencing such contracts;

(b) to enter into contracts with hospitals and other providers for the care and treatment of such individuals, in accordance with the terms of such certificates;

(c) to cooperate, consolidate, or contract with individuals, groups, or organizations interested in promoting and safeguarding the public health; and (d) to engage in any lawful business that is incidental to or supportive of the business and affairs of this corporation.

Id. at § 2; see also Pub. L. No. 105-149, 111 Stat. 2684 (1997); Pub. L. No. 98-493, 98 Stat. 2272 (1984). Section 3 of GHMSI's charter states that the corporation "shall not be conducted for profit, but shall be conducted for the benefit of [its] certificate holders." Pub. L. No. 395, § 3, 53 Stat. 1412 (1939). Section 8 declares GHMSI to be a "charitable and benevolent institution, and all of its funds and property shall be exempt from taxation other than taxes on real estate."*fn1 Id. at § 8.

In 1993, Congress amended GHMSI's charter to provide that the corporation shall be domiciled in the District and "shall be licensed and regulated by the District of Columbia in accordance with the laws and regulations of the District of Columbia." Pub. L. No. 103-127, §§ 138(a) and (b)(1), 107 Stat. 1336, 1349 (1993).

The dispute between the parties arose shortly after defendant CareFirst, a Maryland-based, non-profit holding company, assumed control of GHMSI in 1997. (Compl. ¶¶ 5, 9.) Under the management and control of CareFirst, GHMSI achieved dramatic growth in capital and, by 2007, GHMSI had a surplus in excess of $750 million. (Id. ¶¶ 9-14, 24.) According to plaintiff, "the pursuit of profitable business and the building of asset value became GHMSI's bottom-line goals." (Id. 9.)

On June 24, 2008, plaintiff filed suit in the Superior Court of the District of Columbia. Plaintiff's complaint alleges that defendants "willfully violated GHMSI's charter" by operating GHMSI "for other than nonprofit purposes" and "contrary to its mission as a charitable and benevolent institution" (id. ¶¶ 27-28), and that defendants have used GHMSI's assets "inconsistently with [GHMSI's] charitable purposes," which constitutes a "breach of the charitable trust applicable to these assets." (Id. ¶¶ 29-31). Plaintiff seeks declaratory relief, an order of rehabilitation, and other equitable relief.

On July 16, 2008, defendants removed this action claiming federal question jurisdiction. Plaintiff's timely motion to ...


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