STATE OF MAINE

DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

BUREAU OF INSURANCE

STATEMENT OF CASE

The Attorney General requested that Anthem produce:

. . . all documents related to Anthem’s decision to purchase the assets of BCBSME and the consideration to be paid, including without limitation, copies of any valuation or similar analysis of BCBSME.

First Discovery Request of Attorney General, Request No. 4 and

. . . all documents related to the nature and amount of consideration to be paid by Anthem pursuant to the Asset Purchase Agreement, including the amount to be paid for the common stock of Maine Partners and Central Maine Partners and the common stock of Machigonne.

First Discovery Request of Attorney General, Request No. 10.

These documents were requested to assist the Superintendent and the Attorney General in determining the fair market value of BCBSME. This includes consideration of BCBSME "as a going concern, market value, investment on earnings value, net asset value and a control premium, if any." 24 M.R.S.A. § 2301(9-D)(B)(6). The Attorney General has a statutory obligation to inquire into the fair market value of BCBSME and to the amount of cash or other assets that the charitable trust established pursuant to 24 M.R.S.A. § 2301 and 5 M.R.S.A. § 194-A(5) will receive. See 5 M.R.S.A. § 194-A(4) and 24 M.R.S.A. § 2301(9-D)(E)(3) and (I)(1). Anthem has objected to producing the materials requested on the grounds of relevance and danger of unfair prejudice.

The Attorney General has discussed with attorneys for Anthem the document requests and Anthem’s objections. Anthem has agreed to produce on a confidential basis certain materials that may be responsive to, and may satisfy, the requests. After review of these documents the Attorney General will determine if additional materials will be needed. Nevertheless, the Attorney General is filing a Response to Anthem’s Objections to preserve the right to have the Superintendent determine what materials must be produced.

DISCUSSION

1. The documents requested are relevant to the issue of fair market value. Anthem argues (a) that the Legislature has fixed the parameters of the relevant inquiry into fair market value and (b) that the negotiated price Anthem is required to pay is the best evidence of the fair market value of the assets of BCBSME. The Attorney General does not find these arguments persuasive and neither should the Superintendent.

Section 2301(9-D) requires that a nonprofit hospital and medical service organization must submit as part of a plan to convert to a domestic stock insurer an appraisal of the fair market. 24-A M.R.S.A. § 2301(9-D)(I). The statute does not state the Superintendent may not consider any other evidence of the value of the converting organization. There is nothing in the statute to preclude the Superintendent, or any other party, from conducting an appraisal of fair market value and offering that appraisal as evidence bearing on the issue of whether the "terms and conditions of the conversion plan are fair and equitable . . . ." 24 M.R.S.A. § 2301(9-D)(G)(1). The value of the assets of BCBSME is related to its status as a charitable nonprofit organization. This value is to be returned to the people of Maine upon its conversion to a stock insurer. Whatever evidence there is as to value of the assets should be before the Superintendent before a decision is rendered on the conversion application.

Anthem cites a number of cases in support of its argument that fair market value is the price a willing buyer would pay a willing seller and that the best evidence of fair market value is the price paid in such a transaction. There are two flaws in the argument. First, fair market value is the "price a willing buyer would pay a willing seller at a fair public sale." Shawmut Inn v. Town of Kennebunkport, 428 A.2d 384, 394 (Me. 1981); Frank v. Assessors of Skowhegan, 329 A.2d 167, 173 (Me. 1974). There is nothing in the public record in this case to indicate that the Asset Purchase Agreement resulted from "public sale;" nor is there any evidence the sale was conducted in a "free and open market." Shawmut Inn, 428 A.2d at 395. In this regard, reference is made to BCBSME’s response to Request number 47 of the Superintendent’s Second Discovery Request.

The second flaw in Anthem’s argument relates the weight to be given to the purchase price. The Law Court has made it clear that the price which a buyer and seller agree upon is not conclusive evidence of fair market value. See Arnold v. Maine State Highway Commission, 283 A.2d 655, 659 (Me. 1971) (State’s obligation in eminent domain proceeding to consider sales contract does not "indicate that the price which a buyer and a seller may agree upon is conclusive evidence of fair market value"). In Shawmut Inn, 428 A.2d at 395, the Court observed that "[a]n actual sale . . . ‘shows what is paid, not what is the exact value . . . .’" (quoting Sears, Roebuck & Co. v. Inhabitants of the City of Presque Isle, 150 Me. 181, 188-89 (Me. 1954). These cases show that Anthem has overstated the significance of the negotiated price set forth in the Asset Purchase Agreement.

2. The information requested is highly relevant and would not confuse the issue of valuation.

The issue to be decided in this proceeding is the fair market value of BCBSME, not whether Houlihan Lokey’s valuation reflects fair market value as suggested by Anthem. No issue is of greater concern to the Attorney General and the people of Maine than the valuation issue. Thus, as noted above, it is critical that all available information be presented to the Superintendent.

The Attorney General acknowledges Anthem’s concern over the production of materials related to its internal decision-making process but objects to Anthem’s attempt to hide any valuation of BCBSME it undertook under the cloak of the decision-making process. The Attorney General has discussed with Anthem limiting the scope of the discovery requests to address Anthem’s concern and would suggest to the Superintendent that Anthem be required to produce a list of materials responsive to the requests in order that a determination can be made as to which materials should be produced. In this regard, it is worthy of note that BCBSME, in response to a similar discovery request of the Superintendent, produced all materials related to the valuation issue and the consideration to be paid under the Asset Purchase Agreement. These materials are protected under appropriate confidentiality orders of the Superintendent. Similar protections could be provided to Anthem to address its confidentiality concerns.

CONCLUSION

For the foregoing reasons, the Attorney General requests the Superintendent order Anthem to produce all materials responsive to Request No. 4 and Request No. 10 of the Attorney General’s First Discovery Request.

Dated:                                                                       _____________________________

WILLIAM H. LAUBENSTEIN, III

Assistant Attorney General

6 State House Station

Augusta, ME 04333-0006

Telephone: (207) 626-8800