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State of Minnesota v. Allina Health System

May 18, 2004


Hennepin County District Court. File No. MC 01-004100.

Considered and decided by Toussaint, Chief Judge; Anderson, Judge; and Huspeni, Judge.*fn1


Summary judgment is not properly granted where there has not been adequate notice of, and an opportunity to be heard concerning, requested relief.

The opinion of the court was delivered by: G. Barry Anderson, Judge



The state brought this action against Allina Health System seeking solely to compel disclosure of certain documents. The state and Medica, formerly a subsidiary of Allina, agreed to an order appointing eight identified individuals as administrators of Medica. After nearly two years under this arrangement, Medica moved to dismiss the original action arguing, inter alia, that the goals of the litigation had been achieved. The district court denied this motion and granted the state affirmative relief, including authorizing the Attorney General to "rehabilitate" Medica, declaring the elections of some board members void, ordering the administrators to remain in their positions, and authorizing the state to appoint additional administrators. Because Medica was not given adequate notice of the requested relief and thus did not have an opportunity to be heard regarding the proposed relief, we reverse.


The appellant in this proceeding is the board of directors of Medica Health Plans (Medica); the respondent is the State of Minnesota. On January 18, 2000, the United States Department of Health and Human Services, Office of the Inspector General (HHS IG), issued an audit report detailing questionable administrative costs for nine health-care management organizations, including Medica, which was then a subsidiary of Allina Health System (Allina). Allina and Medica are both non-profit corporations organized under chapter 317A of the Minnesota Statutes.

The Minnesota Attorney General began an investigation of Allina, but Allina provided the Attorney General only some of the information and documents demanded. As a result, respondent filed a complaint in district court alleging that Allina had failed to produce all of the demanded documents and requesting an order: (1) declaring Allina in violation of Minn. Stat. § 309.54 (2000) for refusing to produce the documents, (2) ordering Allina to produce the documents, (3) granting respondent attorneys' fees, investigative costs, and costs and disbursements, (4) appointing a referee to supervise the production of the information and documents, (5) ordering Allina to pay for respondent's accountants, and (6) "[g]ranting such further relief as the Court deems necessary." The complaint sought no other relief and has never been amended.

On August 2, 2001, a consent order between Allina and respondent was entered in Hennepin County District Court that provided for the separation of Allina-affiliated organizations financing health care from Allina-affiliated organizations delivering health care. The consent order required an independent board of directors and noted that the then-current board of Medica had resigned and that persons qualified to act as directors for Medica were hesitant to do so because of an on-going investigation by the U.S. Attorney's Office. Consequently, the consent order appointed eight individuals as directors and special administrators of Medica pursuant to chapter 309 of the Minnesota Statutes.

The special administrators were ordered "to adopt Restated Bylaws and Articles of Incorporation necessary to effect the reorganization," of Medica but did not otherwise identify the duties of the special administrators. The president and chief financial officer were ordered to enter into indemnification agreements with each of the newly appointed Medica directors.

On January 10, 2002, Medica and Allina entered into a plan separating the two organizations. On April 30, 2002, Medica, with the approval of the Minnesota Department of Health, adopted new articles of incorporation and bylaws.

In June 2002, elections to Medica's board were held and four of the special administrators were elected as member-directors. The remaining special administrators were elected as non-member directors, along with others who had never served as special administrators. The chair and vice chair of the newly appointed board were both special administrators.

On February 19, 2003, respondent moved to dismiss Allina as a party to this litigation and to dismiss three of Medica's special administrators but specifically did not terminate the proceedings as related to Medica. The district court granted this motion before receiving a response from Medica, but vacated the order on February 27, 2003, because Medica objected to it. The parties then engaged in fruitless negotiations.

On April 25, 2003, Medica moved to dismiss for lack of subject matter jurisdiction or for summary judgment. In response, respondent argued, inter alia, that the appointments of the special administrators continued until Medica had been successfully rehabilitated; respondent also argued that the appointments were not to terminate until the Attorney General petitioned the district court for dismissal. Respondent attacked the performance of the special administrators, essentially accusing the special administrators of failing to perform their duties and of unethical behavior, and ...

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