Petty v. Hospital Service Association of Northeastern Pennsylvania, No. 34 MAP 2010 (Pa. June 20, 2011)
Petty is the owner of a masonry company that contracts with Blue Cross to provide health insurance coverage for its employees. He is a subscriber under the group policy.
In the Court of Common Pleas of Lackawanna County, Petty and his company filed a class action lawsuit against Blue Cross alleging that it violated Section 5545 of the Pennsylvania Nonprofit Corporation Law by accumulating excessive profits and surplus. They also sued for breach of contract and breach of fiduciary duty as a result of this accrued surplus.
The trial court found that they lacked standing to maintain the claims. On appeal, the Pennsylvania Commonwealth Court affirmed the trial court. Petty and his company then appealed to the Pennsylvania Supreme Court.
Because the matters of standing and statutory interpretation are questions of law, the Court exercised a de novo standard of review.
The Court observed that standing under Pennsylvania’s Nonprofit Corporation Law is determined by Section 5793 (a):
Upon petition of any person whose status as, or whose rights or duties as, a member, director, member of an other body, officer or otherwise of a nonprofit corporation are or may be affected by any corporate action, the court may hear and determine the validity of such corporate action.
Recognizing that Petty and his company do not hold any of the positions mentioned in the statute, the Court focused on the words “or otherwise.” It looked to the statutory and corporate definitions of these positions and found that Petty and his company lacked standing under the Nonprofit Law to challenge Blue Cross’s corporate actions because they had no vested interest or authority in the corporation.
The Court also found that they lacked standing for the common law claims because the claims were “merely another attempt to attack corporate decision-making.”
The Pennsylvania Supreme Court affirmed the Commonwealth Court’s decision.