X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Independent insurance agents Ram Sitaram and Tom Naug arranged with GTE to become a client of Texas Sanus Health Plan. Under the agreement, Sanus was to pay Sitaram (Naug later died) 1 percent of the gross premiums GTE paid. Sanus stopped making payments to Sitaram four years later, in 1993. The dispute resulted in a settlement, which included a schedule of future payments and a provision stating that the provision would be binding on a successor in interest to Sanus. Sanus eventually took over the name NYLCareSW. In 1998, Aetna Inc. entered into an agreement whereby it purchased NYLCare Health Plans Inc., the parent corporation of NYLCareSW, and became the parent company of both entities. As a result of the transaction, Aetna U.S. Healthcare of North Texas (AUSHC) and NYLCareSW, who had been competitors, became sister affiliates. Under the terms of the asset purchase agreement, a definition of “excluded liabilities” included “all liabilities of [NYHPI] or any Subsidiary of [NYHPI] to the extent they do not arise out of or related to [NYHPI].” After the acquisition, NYLCareSW began coordinating some of its marketing, sales and administrative services with AUSHC. In spring 1999, GTE solicited proposals for employee health care plans. AUSHC presented a joint proposal on behalf of itself and NYLCareSW. However, in June 1999, a federal district court ordered Aetna and its subsidiaries to divest itself of certain Texas healthcare subsidiaries, including NYLCareSW. Pending the divestiture, Aetna was ordered to hold those subsidiaries out as competing health plans. Only then did NYLCareSW make a separate proposal to GTE. GTE chose to go with AUSHC and formally stopped doing business with NYLCareSW in January 2000. In February 2001, Sitaram sued AUSHC for breach of the 1993 settlement. He alleged that AUSHC became a successor in interest under the agreement’s terms and that AUSHC was liable to him under that agreement for premiums GTE paid to AUSHC during from January 2000 to January 2002, when the GTE/AUSHC relationship ended. AUSHC moved for summary judgment, saying Sitaram sued the wrong party. Upon Sitaram’s motion for leave to join additional Aetna entities, AUSHC stipulated that NYHPI was the only Aetna entity against whom Sitaram could pursue his claim. Sitaram’s counsel questioned the designation of NYHPI, as that entity did not seem to be involved. AUSHC’s counsel stated that the stipulation was “better than reams of discovery.” Sitaram’s attorney said, “I’ll take them at their word that . . . if we prove [AUSHC] retains the account, then [NYHPI] would be responsible for the payment of the commission.” When asked by the trial court if this was “fair,” AUSHC’s attorney replied, “As stipulated.” Sitaram amended his petition to describe the corporate lineage of the Aetna-related defendants as he saw it. AUSHC moved for summary judgment on two grounds: (1) AUSHC was not a party to the 1993 settlement, nor a successor in interest to the party bound by that settlement; and (2) there was no breach of the 1993 settlement because there was no obligation of payment as of GTE’s terminated business relationship with NYLCareSW. In turn, NYHPI moved for summary judgment on two grounds. First, that NYHPI was a separate corporation from NYLCareSW. The second ground was the same as AUSHC’s second ground. The trial court granted summary judgment to both parties on both grounds. Summary judgment was not based, however, on Sitaram’s initial failure to name the correct party in his lawsuit. HOLDING:Affirmed. The court first examines whether the exchange between the attorneys and the trial court, regarding the stipulation, constituted a Rule 11 agreement. The court concludes that the record does not clearly demonstrate the parties agreed to an additional stipulation. First, the alleged oral agreement was uncertain, as Sitaram’s attorney’s remarks did not thoroughly state the terms of any stipulation. Second, it is clear from other statements in the record that AUSHC and NYHPI were entering into the original stipulation for the sole purpose of limiting discovery and expressly rejected the notion that the stipulation was an admission of liability. The trial court thus properly disregarded this alleged, additional agreement. The court then turns to the summary judgment orders. The court begins with the general presumption that courts will recognize the separate identities of corporations even when one corporation dominates or controls another, or even treats the other as a mere department, instrumentality or agency. Furthermore, under Business & Corp. Act art. 5.10(B), the purchase of all or substantially all of the property or assets of the seller corporation does not make the acquiring entity responsible or liable for the seller corporation’s liabilities unless another statute expressly provides to the contrary. The court also notes that, with respect to corporations, “successor” does not ordinarily mean an assignee. Rather, a “successor” usually describes the status of a corporation that has become vested with the rights and has assumed the burdens of another corporation by “amalgamation, consolidation, or duly authorized legal succession, and does not contemplate acquisition by ordinary purchase from another corporation.” For Aetna to be liable for NYLCareSW’s liability under the 1993 settlement, then, either a statute would have to expressly authorized the assumption, or Aetna expressly assumed this liability when it purchased the entity in 1998. The court says it recognizes that because neither AUSHC nor NYHPI was a party to the asset purchase agreement, even if Aetna assumed the obligation, another analytical step would be required to determine whether AUSHC or NYHPI, both subsidiaries of Aetna, would be liable for an obligation assumed by their parent corporation. The court finds no statutory authority expressly providing for assumption of liability under facts like these. Though there are questions of fact about the integration of AUSHC and NYLCareSW, those facts are not material to the existence or application of any statutory authority under which Aetna could be said to have assumed NYLCareSW’s liabilities. Nor was their express assumption of these liabilities in the asset purchase agreement, the court continues. OPINION:Donald R. Ross, J.; Morriss, C.J., Ross and Carter, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.