More than six months after Blue Cross/Blue Shield of North Carolina assumed control of the board of a local charity, questions remain about the legality of the vote that approved the takeover.
The controversy centers on a proposal approved Sep. 26 by the board of directors of the Caring Program for Children, which provides health insurance to needy children in North Carolina. The proposal allowed Blue Cross to appoint 11 of the board's 21 members. In addition, Blue Cross increased its annual contribution to the Caring Program from $372,000 to $700,000.
But Karen Mortimer, who was executive director of the Caring Program during consideration of the proposal, says that board members took several steps that were unethical and possibly illegal when they approved the plan. Mortimer, who was fired by the board in October 1996, is suing Blue Cross on the grounds that she was wrongfully terminated.
As part of her suit, Mortimer alleges that several board members who voted on the proposal had conflicts of interest and did not disclose them, rendering the vote invalid. In addition to requesting reinstatement, Mortimer is also seeking another vote on the proposal.
Blue Cross representatives and lawyers declined to comment on the case because it is still in litigation.
At the time of the vote, Blue Cross had the authority to appoint seven members to the board. Six were current or former employees of the insurance company. All seven voted in favor of the proposal, which passed, 12-5. Mortimer's lawyers claim that allowing those seven board members to vote violates North Carolina statues defining proper conduct for board members.
According to state law, a vote involving board members who have conflicts of interest is legal in two instances-if members disclose those conflicts, or if the measure voted upon is "fair" to the organization represented by the board members.
The seven members who were affiliated with Blue Cross had a clear conflict of interest because Blue Cross presented the proposal, said Mark Dorosin, one of Mortimer's lawyers.
Other legal authorities, including counsel to the Caring Program, had similar opinions at the time of the vote. "In this situation, I have advised [Trip Adams, then-president of the board], that directors that are employed with Blue Cross and Blue Shield ought to refrain from voting on the proposal because they have an interest in the outcome," wrote Marion Bergdolt in a Sept. 26 letter to the board which members received before the vote.
The proposal could only have been approved by a majority of directors who did not have a conflict, wrote Bergdolt, who represented the Caring Program at the time of the vote. Without the votes from the seven members affiliated with Blue Cross, the vote on the proposal would have deadlocked at 5-5.
Another advisor to the board, Wake Forest law professor Mark Hall, recommended that the board try to reach a consensus or a large majority in favor of the proposal, as opposed to the simple majority mandated by the organization's bylaws.
Hall also said that board members affiliated with Blue Cross probably had a conflict of interest that they should have disclosed. "When a conflict of interest exists, you need a sanitized vote and full disclosure [of the conflict,]" he said.
Each year, members of the Caring Program's board are required to sign a conflict of interest certificate disclosing any potential conflicts. At the time of the vote, none of the Blue Cross-affiliated board members disclosed any conflicts, Mortimer said.
Being employed by a corporation entails some loyalty on the part of the employee, said Rev. Brett Webb-Mitchell, a visiting professor at the Divinity School. This makes it harder for Blue Cross employees to act in the best interest of the Caring Program when the two organizations' motives conflict, he said.
Despite these concerns, the outcome of Mortimer's case is still uncertain. Usually, courts tend to be fairly lenient towards businesses, Hall said. "Otherwise, no business could occur," he said.
Uncertainty also remains about whether the Blue Cross proposal was "fair" to the Caring Program as dictated by state law. If the courts hold that Blue Cross's proposal was fair, then the takeover could be upheld regardless of whether any board member had a conflict of interest.
Courts tend to interpret the definition of "fair" on a case-by-case basis, Hall said. Nevertheless, Mortimer and her lawyers say that the proposal was not fair to the Caring Program.
Blue Cross representatives pointed to improvements in the program's coverage as evidence that the company's primary motive is to help more children. In the six months since the proposal's approval, the number of children helped by the program has increased from 3,800 to about 4,200, said Jan Emerson, director of public relations.
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