Wooden v. Highmark, Inc.
Pennsylvania Court of Common Pleas
2013 Phila. Ct. Com. Pl. LEXIS 547 (2013)

- Written by Craig Scheer, JD
Facts
Highmark, Inc. (Highmark) (defendant) was a Pennsylvania nonprofit corporation that operated both a hospital plan and a professional health-services plan under licenses from the Blue Cross/Blue Shield organization. From 2005 to 2009, Highmark earned net profits of more than $1.2 billion, mostly through its for-profit subsidiaries and its other investment activities. During that period, Highmark paid approximately $58 million in compensation to its top 12 executives, including significant profit-based bonuses. Highmark invested the balance of the profits in its for-profit subsidiaries and its investment portfolio. As a health insurer, Highmark’s investments and capital levels were regulated and monitored by the Pennsylvania Department of Insurance (Insurance Department), which said that Highmark’s capital levels were appropriate, sufficient, and not inefficient during the 2005–2009 period. The Insurance Department also said that the compensation paid to Highmark executives from 2004 to 2008 was reasonable. Herman Wooden and Thomas Logan (plaintiffs), former Highmark members (the former members), sued Highmark for allegedly violating Pennsylvania’s Nonprofit Corporation Law (NCL) by accumulating excess profits and improperly distributing those profits to Highmark executives as compensation. The former members pointed to an NCL provision that permitted nonprofit corporations to earn incidental profits from their products and services, arguing that Highmark’s 2005–2009 earnings were not incidental. The former members also referenced a general prohibition in the NCL on nonprofit corporations distributing their profits to their members, directors, and officers, arguing that this prohibition precluded Highmark from paying profit-based bonuses to its executives.
Rule of Law
Issue
Holding and Reasoning (McInerney, J.)
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