In June 2016, plaintiffs, who are current and former members of Cooperative of American Physicians, Inc. (CAP) and current and former trustees of Mutual Protection Trust (MPT), sued CAP, ten of the eleven members of CAP’s board of directors, and the remaining MPT trustees, alleging that defendants colluded to unlawfully seize more than $300 million of trust fund assets by terminating the CAP and MPT memberships and MPT trusteeships of two of the plaintiffs in a “coup d’etat..” More than 12,000 California doctor-members of CAP were then relying on their memberships in CAP in order to obtain their professional malpractice coverage. Plaintiffs sought a writ of mandamus invalidating the terminations, compelling CAP and MPT to reinstate plaintiffs, and for damages. This is a case of first impression, given that CAP is the only California cooperative cooperation organized and operating in the state under California Corporations Code § 12200 et seq., which was created to allow California-licensed physicians to join together to protect themselves against claims of professional negligence in their medical practices through an interindemnity arrangement among cooperative members. The members structured the interindemnity arrangement (MPT Agreement) to make available the insurance and securities exemptions afforded by California Insurance Code § 1280.7. Pursuant to § 1280.7, CAP membership is a condition precedent to MPT membership. Furthermore, pursuant to the MPT Agreement, an MPT trustee “must be and must remain” a current CAP member.
Plaintiffs contended that the termination of their CAP memberships were void and ultra vires under Insurance Code § 1280.7(b)(9)(G), which, they argued, provides the exclusive procedures for removing a member of any interindemnity arrangement formed under § 1280.7—in this case MPT. In addition, plaintiffs contended the purported terminations ran afoul of CAP’s own bylaws and the requirements of Cal. Corporations Code § 12431(b) in that they were not conducted in good faith. Furthermore, plaintiffs argued that only MPT members can remove its own trustees, and that losing one’s CAP membership does not automatically terminate one’s MPT membership nor status as an MPT Trustee.
Terese A. Mosher Beluris and Vanessa Le Fort led the trial team and were lead counsel at trial, which resulted in the entry of judgment for CAP, the CAP individual defendants, as well as the MPT trustees represented by other counsel.
