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UNH argues case before state Supreme Court
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Is it proper for a judge to remove his judicial robe and put on a businessman’s hat when reviewing terms of a lawsuit settlement?
That’s the issue before the Minnesota Supreme Court in the $920 million agreement that UnitedHealth Group reached in December with a group of shareholders who alleged that massive stock option backdating had deprived the company of millions of dollars of revenue.
But attorneys for UnitedHealth and the shareholders differed Wednesday on how deep U.S. District Court Judge James Rosenbaum can probe into the elements of the settlement, which was recommended by a “special litigation committee” appointed by the UnitedHealth board of directors.
During a hearing in the court’s historic state capitol courtroom, UnitedHealth’s Marianne Short told the justices that a detailed review of the settlement could allow the judge to undo elements of the agreement and “eviscerate” the board of directors’ ability to exercise the time-honored “business judgment rule.”
But Karl Cambronne, representing a class of shareholders and pension funds, argued that judges are asked to rule on the fairness and reasonableness of lawsuit settlements all the time.
“There is no downside … They have that expertise,” Cambronne told the justices. “The court should be able to look at a case and decide whether it meets fairness and reasonableness standards.”
Rosenbaum has the authority to approve the settlement and asked the Supreme Court to clarify his jurisdiction in reviewing it, leading to speculation that he might modify it.
The settlement effectively returns $603.8 million in backdated stock options held by former chairman and CEO William McGuire, $30.55 million in repriced options and cash from former general counsel David Lubben, $227.5 million in repriced options for current CEO Stephen Hemsley and $42 million in repriced options for other corporate officers.
The agreement was hammered out by UnitedHealth, shareholder plaintiffs in the lawsuit and the special litigation committee appointed by the UnitedHealth board to review the legal claims against the company. The special litigation committee was composed of two former state Supreme Court justices — Kathleen Blatz and Edward Stringer.
The business judgment rule cited by Short immunizes management from liability when it can be shown that a transaction was made in good faith.
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