This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1998).




In Re:

Blue Cross and Blue Shield

Subscriber Litigation.

Filed April 13, 1999


Klaphake, Judge

Dissenting, Short, Judge

Dakota County District Court

File No. C3-98-7780

Samuel D. Heins, Daniel E. Gustafson, Heins Mills & Olson, P.L.C., 700 Northstar East, 608 Second Ave. S., Minneapolis, MN 55402; and

Jack L. Chestnut, Karl L. Cambronne, Chestnut & Brooks, P.A., 3700 Piper Jaffray Tower, 222 S. Ninth St., Minneapolis, MN 55402 (for appellants)

Michael V. Ciresi, Deborah J. Palmer, David W. Beehler, Joel A. Mintzer, Robins Kaplan Miller & Ciresi, L.L.P., 2800 LaSalle Plaza, 800 LaSalle Ave., Minneapolis, MN 55402 (for respondent Blue Cross)

Michael A. Hatch, Attorney General, Gregory Gisvold, Stephen K. Warch, Assistant Attorneys General, 1200 NCL Tower, 445 Minnesota St., St. Paul, MN 55101 (for respondent Commissioner of Commerce)

Considered and decided by Kalitowski, Presiding Judge, Short, Judge, and Klaphake, Judge.



Appellants, individual subscribers of Blue Cross and Blue Shield of Minnesota (Blue Cross), challenge the district court's judgment dismissing their class action to recover settlement proceeds that Blue Cross received in a separate action against various tobacco companies and trade associations for increased costs of funding smoking-related illnesses. Because we conclude that the district court did not abuse its discretion in concluding that the action is subject to the primary jurisdiction of the Commissioner of Commerce (commissioner), we affirm.


Blue Cross is a nonprofit health service plan organized under the Nonprofit Health Service Plan Corporations Act, Minn. Stat. §§ 62C.01-.23 (1998). Blue Cross contracts with health care providers and with its subscribers to arrange for health care services to be furnished to its subscribers. In 1994, Blue Cross sought to recover damages from various tobacco companies and trade associations for its increased health care costs associated with the treatment of smoking-related illnesses. In 1998, the parties reached a confidential settlement in which it was revealed that Blue Cross would recover $469 million in damages. Soon after, numerous Blue Cross subscribers initiated separate actions against Blue Cross to recover amounts Blue Cross would allegedly receive on their behalf from the tobacco defendants. The district court consolidated the separate actions into one class action. The subscribers allege causes of action against Blue Cross for breach of special duty, unjust enrichment, restitution, constructive trust and accounting. On July 2, 1998, the commissioner intervened in the action.

The district court entered a judgment dismissing the case for failure to state a claim upon which relief could be granted, concluding that any settlement proceeds Blue Cross received were "subject to the primary jurisdiction of the Commerce Commissioner under M.S. 62C.01 et seq."


A court's determination of primary jurisdiction is subject to an abuse of discretion standard of review. See Environmental Tech. Council v. Sierra Club, 98 F.3d 774, 789 (4th Cir. 1996) (district court's refusal to defer case to environmental protection agency subject to abuse of discretion standard of review), cert. denied, 521 U.S. 1103, 117 S. Ct. 2478 (1997); Brumark Corp. v. Samson Resources Corp., 57 F.3d 941, 947-48 (10th Cir. 1995) (district court's decision to refer oil and gas leasehold interest owner's action against natural gas well operator to Oklahoma Corporation Commission subject to abuse of discretion standard of review); Mills v. Davis Oil Co., 11 F.3d 1298, 1304 (5th Cir. 1994) (district court's decision that natural gas well rights should be decided by Louisiana Commissioner of Conservation subject to abuse of discretion standard of review). This standard of review derives from the district court's exercise of discretion in structuring and coordinating administrative and judicial proceedings. Environmental Tech. Council, 98 F.3d at 789, n.24; see United States v. Western Pac. R.R. Co., 352 U.S. 59, 64, 77 S. Ct. 161, 165 (1956) ("[n]o fixed formula exists for applying the doctrine of primary jurisdiction").

The parties disagree about whether the court or the commissioner should have primary jurisdiction over this case. Primary jurisdiction is a judicially created doctrine that allows a court to postpone its jurisdiction when it initially has concurrent jurisdiction with an administrative agency. See Far East Conference v. United States, 342 U.S. 570, 574, 72 S. Ct. 492, 494 (1952); City of Rochester v. People's Coop. Power Ass'n, 483 N.W.2d 477, 480 (Minn. 1992). One purpose of the doctrine is to promote "the orderly and sensible coordination of the work of agencies and courts." People's Coop., 483 N.W.2d at 480 (quoting State, by Pollution Control Agency v. United States Steel Corp., 307 Minn. 374, 380, 240 N.W.2d 316, 319 (1976)). Another purpose is to provide for uniform and consistent results. Far East Conference, 342 U.S. at 574, 72 S. Ct. at 494; People's Coop., 483 N.W.2d at 480.

The doctrine applies when a claim "requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body." Western Pac. R.R. Co., 352 U.S. at 63-64, 77 S. Ct. at 165; Far East Conference, 342 U.S. at 574-75, 72 S. Ct. at 494 (judicial review more rationally exercised if agencies first ascertain and interpret circumstances underlying legal issues, because agencies are specialized, have "insight[s] gained through experience, and [use] more flexible procedure[s]"); People's Coop., 483 N.W.2d at 480. Such claims may concern issues that are within the "special competence" of an agency or are not within the "conventional experience of judges." People's Coop., 483 N.W.2d at 480. The doctrine does not apply to inherently judicial matters. Id.; Central Distribution Carriers, Inc. v. Mrs. Gerry's Kitchen, Inc., 521 N.W.2d 870, 873 (Minn. App. 1994).

The commissioner has "the power to enforce all the laws of this state relating to insurance." Minn. Stat. § 60A.03, subd. 2 (1998). With respect to the regulation of corporations such as Blue Cross, the commissioner derives its authority from the Nonprofit Health Service Plan Corporations Act, Minn. Stat. §§ 62C.01-.23 (1998). Under this act, the commissioner has the power to approve articles of incorporation and bylaws of any service plan corporation, Minn. Stat. § 62C.06; grant, suspend, or revoke certificates of authority ensuring its compliance with pertinent laws, rules, or procedures, id. at §§ 62C.08; 62C.12, 62C.21; and verify and regulate its financial condition and regulate and authorize its contracts with subscribers, id. at §§ 62C.09, subd. 1, 62C.11, subd. 2, 62C.15. Premiums or "charges" to subscribers must be "reasonable, and not unfairly discriminatory, in relation to the benefits," considering service costs, administration costs, and "reserves and surplus required by law." Id. at § 62C.15, subd. 1. If any surplus exists in excess of a statutory maximum, the commissioner must approve a plan proposed by the corporation to adjust operations to correct the surplus, and the commissioner may penalize the corporation for improper resolution of any surplus. Id. at § 62C.09, subds. 3, 4.

We agree that the commissioner should, in the first instance, ascertain the nature of the settlement and the amount of proceeds, if any, received on behalf of subscribers. The action initiated by Blue Cross was to recover its own out-of-pocket losses associated with smoking-related illnesses; some portion of any recovery clearly belongs to Blue Cross. Even assuming that the settlement includes proceeds to which subscribers are entitled, a calculation of those amounts would necessarily include a determination of "reasonable" past subscription charges paid by the subscribers. Minn. Stat. § 62C.15, subd. 1.

Although the subscribers argue that damages evidence from the tobacco litigation establishes the proper subscription charges that should have been paid by the subscribers, it is unclear whether and to what extent such evidence is reflected in the settlement. Further, under the statute, a determination of reasonable subscription charges includes consideration of their "relation to the benefits, considering actuarial projection of the cost of providing or paying for the health services, considering costs of administration, and in relation to reserves and surplus required by law." Id. Thus, any calculation of amounts owed to the subscribers would include consideration of other factors that could alter the computation urged by the subscribers, which simply compares premium amounts actually paid by the subscribers to settlement amounts received by Blue Cross. See H.J., Inc. v. Northwestern Bell Corp., 420 N.W.2d 673, 676 (Minn. App. 1988) (telephone customers' action against telephone company for unjust enrichment arising out of bribery of PUC members constituted impermissible attack on commissioner's rate-making power), review denied (Minn. May 16, 1988). The commissioner has the expertise to consider this "big picture" in calculating the proper amount of subscription charges.

We conclude that the district court did not abuse its discretion in determining that the commissioner should have primary jurisdiction over this action because Minn. Stat. §§ 62C.01-.23 controls disposition of the proceeds, at least in part. Further, deference to the commissioner is supported by the fact that the district court in this case is being asked to determine how to divide the settlement proceeds, an issue identical to one currently being raised in administrative proceedings before the commissioner. Cf. Minnesota-Iowa Television Co. v. Watonwan T.V. Improvement Ass'n, 294 N.W.2d 297, 302 (Minn. 1980) (where court and agency asked to rule on same question, court required to make primary jurisdiction determination). Finally, any calculation dividing the settlement proceeds necessarily includes matters that are within the commissioner's particular area of expertise. See People's Coop., 483 N.W.2d at 480. In reaching this decision, we make no comment on the merits of the subscribers' underlying common law claims.


SHORT, Judge (dissenting)

I respectfully dissent. Although the trial court has broad discretion in structuring and coordinating administrative and judicial proceedings, we review questions of law and statutory interpretation de novo. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). Neither Minn. Stat. §§ 62C.01-.23 (1998) nor the doctrine of primary jurisdiction mandates reference of this case to the Commissioner of Commerce.

Minn. Stat. §§ 62C.01-.23 provides no statutory authority over appellants' common-law claims of breach of special duty and unjust enrichment. In addition, resolution of those issues does not require the commissioner's expertise. Rather, appellant's common-law claims fall within the original jurisdiction of the trial court. See Minn. Const. art. VI, § 3 (granting trial courts original jurisdiction over civil cases); Minn. Stat. § 484.01, subd. 1 (1998) (stating trial courts "shall have original jurisdiction in all civil actions"); Henning v. Wineman, 306 N.W.2d 550, 553 (Minn. 1981) (concluding trial court has authority to allocate settlement proceeds because of its broad jurisdictional powers).

Moreover, the doctrine of primary jurisdiction does not govern judicial issues, but merely is concerned with the orderly coordination of the work of agencies and courts. See City of Rochester v. People's Coop. Power Ass'n, 483 N.W.2d 477, 480 (Minn. 1992) (noting doctrine of primary jurisdiction ensures proper relationship between courts and agencies, but is inapplicable to inherently judicial issues); Minnesota-Iowa Television Co. v. Watonwan T.V. Improvement Ass'n, 294 N.W.2d 297, 302-03 (Minn. 1980) (refusing to apply primary jurisdiction where lawsuit involved validity of contract under state law, rather than under FCC rules and policies). Because the determination of entitlement to settlement proceeds obtained by Blue Cross from the tobacco litigation is a judicial issue, Minnesota courts have a constitutional obligation to hear appellants' claims. I would reverse and exercise jurisdiction.