Minn. court weighs in on UnitedHealth options case

ST. PAUL—Minnesota's highest court said Thursday that state law requires a mostly hands-off approach to a $420 million stock options settlement between UnitedHealth Group Inc. and its former CEO.

But the ruling isn't the last word on the deal.

That's up to U.S. District Court Judge James Rosenbaum, who had asked the state Supreme Court to clarify state law governing the outside panel that came up with the settlement.

Rosenbaum will decide whether to approve the settlement, which would require former Chairman and Chief Executive William McGuire to repay $320 million worth of stock options and $99 million in departure benefits. Rosenbaum can also consider federal rules, but wanted a deeper look at the Minnesota law.

The opinion from Justice G. Barry Anderson said courts generally must let settlements created by so-called special litigation committees stand unless they find that the panel was biased or acted in bad faith.

Former Minnesota Supreme Court Justices Kathleen Blatz and Edward Stringer made up the UnitedHealth committee created under the state law.

"We note that the UnitedHealth SLC was composed not of independent board members, but of two former members of the judiciary who, until their appointment to the SLC, had no discernible connection to the UnitedHealth board," Anderson wrote in the majority opinion.

Justice Paul H. Anderson concurred, but raised concerns in a separate opinion that the majority opinion gave too much discretion to special litigation committees. He said that could lead to "unnecessary inconsistency" in state law, which also allows courts to examine whether business decisions are reasonable.

Chief Justice Eric Magnuson and Justice Helen Meyer did not participate in the case.

Attorneys said the ruling clearly establishes the latitude of special litigation committees while giving Rosenbaum room to decide what to do about the UnitedHealth settlement.

"Judge Rosenbaum is going to have a fair amount of discretion still in his hands," said Karl Cambronne, lead attorney for a group of shareholder lawsuits against the Minnetonka, Minn.-based managed care company.

Barbara Berens, an attorney representing the UnitedHealth special litigation committee, said the decision is binding on Minnesota courts and federal courts applying Minnesota law. Still, she acknowledged that Rosenbaum could still reject the settlement if he found that the panel failed to act in good faith or was not truly independent of the company.

The ruling does not affect a freeze on McGuire's stock options.