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Herman v. Capital Blue Cross

November 4, 2010

LAWRENCE S. HERMAN, D.C., NACHAS, INC., JASON H. HERMAN, MITCHELL CHIROPRACTIC CENTER, THOMAS C. MITCHELL, D.C., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, APPELLANTS
v.
CAPITAL BLUE CROSS, A NON-PROFIT PENNSYLVANIA CORPORATION
LAWRENCE S. HERMAN, D.C., NACHAS, INC., JASON H. HERMAN, MITCHELL CHIROPRACTIC CENTER, THOMAS C. MITCHELL, D.C., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, APPELLANTS
v.
HIGHMARK, INC. D/B/A HIGHMARK BLUE CROSS BLUE SHIELD AND PENNSYLVANIA BLUE SHIELD, A NON-PROFIT PENNSYLVANIA CORPORATION



The opinion of the court was delivered by: Senior Judge Friedman

Argued: September 13, 2010

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge, HONORABLE JIM FLAHERTY, Senior Judge.

OPINION

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),*fn1 by failing to apply incidental profits to the maintenance and operation of the lawful activities of the corporation; (2) breached their contracts with Herman; (3) breached their fiduciary duties to Herman; and (4) are required to produce their corporate books and records for inspection by Herman under sections 5508(b) and 5793 of the Nonprofit Law.*fn2

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*fn3 to bring an action alleging a violation of section 5545 of the Nonprofit Law, an action for breach of contract or an action to produce corporate books and records for inspection; and (4) Herman did not state a cause of action for breach of fiduciary duty. Herman now appeals to this court.*fn4

I. Common Law Standing

Herman argues that the trial court erred in concluding that he lacked common law standing to bring an action for breach of contract. We disagree.

A. Petty

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:

[T]o adopt Petty's argument [on common law standing] would mean that every person who contracts with a [nonprofit] corporation could go beyond the confines of the underlying agreement and challenge the validity of any of that [nonprofit's] corporate actions. While imaginative, this is nothing more than [an] attempt to circumvent the Legislature's express limitation in Section 5793(a) of the Nonprofit Law that the only parties who are capable of challenging the validity of [nonprofit] corporation action are "a member, director, member of an other body, officer or otherwise of a [nonprofit] corporation." In addition, permitting Petty to establish standing would expose [nonprofit] corporations to litigation and undermine this Court's decision in [Ciamaichelo v. Independence Blue Cross, 928 A.2d 407 (Pa. Cmwlth. 2007)] where we went to great lengths to interpret Section 5793(a) of the Nonprofit Law and explain how subscribers, with specific governance powers enumerated in the articles of incorporation and bylaws were the only ones qualified to maintain actions under the term "or otherwise."

Petty, 967 A.2d at 448.*fn5

B. Liss

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 ...


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