The state attorney general’s office has decided not to challenge a recent state appeals court ruling that the attorney general lacked the jurisdiction to try to force FHP International Corp. to donate $80 million to charity.
The decision ends a 4-year-old court case in which the attorney general’s office had accused a group of FHP managers of failing to donate a reasonable amount to charity after they bought the nonprofit health maintenance organization in November, 1985, and coverted it to a for-profit company.
Under state law, the buyers of an HMO must give charities an amount equal to the fair value of the company before they can convert from nonprofit status to for-profit status. The FHP management group paid $38.4 million for the company in 1985 and donated an equal sum to charity through the FHP Foundation.
But when FHP raised $100 million in a public stock offering in 1986, the attorney general’s office filed a lawsuit, contending that FHP should donate another $80 million to charity. FHP won a victory when a Los Angeles County Superior Court judge in 1988 ruled that a 1975 statute had transferred enforcement powers over the HMO law from the state attorney general to the state Department of Corporations. The Court of Appeal concurred last month.
“The appellate court, in an extraordinary detailed analysis, stated that the Legislature had removed jurisdiction from the attorney general on these allegations,” Chief Assistant Atty. Gen. Andrea Ordin said Monday.
FHP Chairman Robert Gumbiner welcomed the attorney general’s decision.
“This litigation is finally over,” he said in a statement. “The investment community can now rest assured that FHP’s representation that the allegations were of little merit proved to be correct.”
FHP has 550,000 members, about half of them in Southern California.