Colo. Commissioner Rejects A.G.’s Fee Arrangement in Blue Cross Conversion Case

May 18, 2004

Colorado Commissioner of Insurance Doug Dean has refused to approve an attorneys’ fees agreement negotiated by the Colorado Attorney General’s office.

Local attorney Ed Kahn of the law firm Kelly, Haglund, Garnsey & Kahn originally requested $2.75 million in fees for his role in the conversion of Blue Cross Blue Shield to a for-profit insurance company in 1999. Blue Cross was ultimately purchased by Anthem and is now doing business in Colorado as Anthem Blue Cross and Blue Shield of Colorado. As a condition for the conversion, a charitable
trust called the Caring for Colorado Foundation was established to serve the health care needs of Coloradoans.

Kahn reportedly first submitted a request for $2.75 million in attorneys’ fees to then Commissioner William J. Kirven
in 1999. Kirven denied the request, and Kahn appealed to the Colorado Court of Appeals. The Court of Appeals affirmed the Commissioner’s ruling, and Kahn appealed to the Supreme Court.
The Supreme Court reversed the decision and found the Commissioner had authority to award fees if, among other things, he determined that Kahn’s efforts were necessary to effectuate the conversion and substantially responsible for enhancing the consideration paid by Anthem to the Foundation of $55 million.

The court said that the Commissioner of Insurance is the fiduciary of the Foundation and is empowered to transfer assets to meet the health care needs of Colorado’s citizens. Commissioner Doug Dean initiated regulatory proceedings to comply with the Supreme Court’s directive and set the matter for a public hearing. The Office of the Attorney General simultaneously initiated settlement negotiations between Kahn and the Foundation.

The Commissioner was reportedly unaware of the settlement negotiations and was not asked to participate. Kahn ultimately informed the Commissioner that the Foundation agreed to pay him $300,000 and requested the Commissioner’s approval. Dean refused to approve the settlement agreement after a hearing held on Dec. 19,

“The Supreme Court said it was my responsibility to exercise a high standard of care regarding the Foundation’s assets, and I took the role of fiduciary very seriously,” said Dean. “The Supreme Court did not
permit the Attorney General to perform my responsibilities for me. To fulfill my obligations to the Foundation and Colorado citizens, I needed to hear the testimony and review the evidence for myself. After doing so, I determined the Foundation should not be responsible for paying those fees,” he said.

Kahn testified that he became involved in these proceedings with no expectation of payment. He claimed his work enhanced the value of the Foundation because Anthem ultimately paid more for Blue Cross. He also testified that he never had a fee agreement with the Foundation, and never informed them he would be seeking fees until the conversion was complete.

Dean noted that there was no evidence Kahn’s efforts were necessary for the conversion, or that his efforts increased the amount of money Anthem ultimately paid.

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