The Minnesota Supreme Court said Thursday that a federal judge can do only a limited review of a landmark settlement between UnitedHealth Group Inc. and its former chief executive, William McGuire.
The $420 million settlement brokered in December was considered a done deal until U.S. District Judge James Rosenbaum asked the state high court if he had the ability to do more than simply rubber-stamp it.
The settlement was based on a recommendation by the Special Litigation Committee (SLC) appointed by the company's board to investigate backdated stock options, a scandal that erupted in 2006 and cost McGuire his job.
Justice Barry Anderson wrote in an opinion filed Thursday that Rosenbaum is required to defer to the decision of the SLC if it's found that the committee is independent from the board of directors and pursued the investigation appropriately and in good faith.
Allowing the court to "second-guess" the panel's decision undermines the SLC process itself, Anderson said.
He noted that the SLC was made up of two former Supreme Court justices who had no previous connection to UnitedHealth's board.
Thursday's opinion is the latest installment in a complicated legal saga related to backdated stock options at the Minnetonka-based health insurer. The company has also proposed to pay $895 million to settle a separate shareholder lawsuit brought by the California Public Employees' Retirement System (CalPERS).
McGuire and former UnitedHealth general counsel David Lubben are not part of the second settlement, and CalPERS is continuing to pursue its case against the two former executives. A trial is set for fall.
Thursday's Supreme Court opinion was welcomed by UnitedHealth, which said it is anxious to put the case behind it.
"Now that the Minnesota Supreme Court has answered this important question, we look forward to the presentation of the settlement to Judge Rosenbaum and the resolution of this matter," UnitedHealth spokesman Don Nathan said.
However, the Supreme Court also left it up to Rosenbaum to interpret a separate federal procedural rule governing class-action and derivative lawsuits, which may allow the judge a deeper review.
"The judge has asked for guidance and only to some extent has the Supreme Court given him guidance," said Karl Cambronne, lead attorney in the consolidated lawsuits against UnitedHealth, which was part of the $420 million settlement.
"We anticipate [the settlement] will comport with his [Rosenbaum's] standards of reasonableness," the attorney said.
Cambronne said that he expects there to be a hearing concerning the matter before the end of the year.
Chen May Yee • 612-673-7434