Delta Dental board directors illegally seized power from Kansas dentists, court rules
Delta Dental of Kansas board directors, without warning, illegally stripped member dentists of voting powers, created lifetime appointments, and superseded legislation that created the nonprofit. (Getty Images)
TOPEKA — Political appointees to the Delta Dental of Kansas board illegally extended their terms and stripped power from member dentists during a confidential meeting last December, a Sedgwick County District Court judge ruled Thursday.
The judge sided with two dentists who filed a lawsuit over the changes to the nonprofit insurance provider’s articles of incorporation and bylaws. DDKS defended the board’s extraordinary power grab as necessary to block dentists from seeking changes to reimbursement rates, and the Kansas Insurance Department endorsed the board’s actions.
Kansas law enacted in 1972 created DDKS and provided a balanced power structure between dentists and the 10-person board that manages the company. The board includes two directors appointed by the governor and four appointed by the insurance commissioner, along with four elected by dentists.
The appointed board directors, including Kansas GOP official and political consultant Kim Borchers, unilaterally determined they had the power of stockholders under Kansas corporate law, even though the nonprofit doesn’t have stock and bylaws passed in 2000 gave member dentists “all voting powers” normally given to stockholders.
The board voted 6-4 to eliminate language giving stockholder powers to dentists. They also extended the length of their appointments, which applied retroactively to two directors whose terms had already expired, and made the terms automatically renewable. The change blocked Democratic Gov. Laura Kelly from replacing board directors.
Additionally, any future revisions would require a supermajority of the six appointed directors, neutralizing the votes of the four selected by dentists.
District Judge William Woolley voided those changes in his ruling Thursday.
“The six appointed directors adopted amendments to the articles and bylaws that illegally stripped the members of their powers, marginalized or eliminated the need for the elected directors to participate in board decisions, gave the six elected directors supermajority control of DDKS and gave the directors the exclusive ability to extend their terms,” Woolley wrote.
“These facts,” he said, “are sufficient to allege the six directors acted with sufficient self-interest.”
More than 95% of Kansas dentists, about 1,300, participate in DDKS. The company provides coverage to about 1 million Kansans, a third of the state’s population.
Mark Troilo, who opened a dental practice in 1978 in Rose Hill, and Christopher Leiszler, who opened practice in Baldwin City after getting his license in 2005, brought the lawsuit alleging the appointed board directors acted illegally and violated their fiduciary duties.
The two had tried for months to arrange a meeting with the board to discuss payments the company makes to dentists, among other recommended changes. In his ruling, Woolley made it clear that the board alone has the power to manage DDKS business.
Sarah Patterson, spokeswoman for DDKS, said the company spent two years defending itself from “harmful and illegal attacks” by dentists, including efforts to determine fees and change membership requirements.
“Delta Dental is disappointed with parts of the court’s decision, and our position continues to be that Delta Dental of Kansas’ Board of Directors adopted a safety measure to ensure a very small group of dentists don’t enact illegal and harmful changes to the company,” Patterson said. “Those dentists have characterized Delta Dental’s actions as a power grab, which is simply not true. The persistent efforts of those dentists to undermine the company really left the board with no choice but to take very limited steps to protect the company.”
Fifty dentists signed onto a letter from Troilo in October 2020 asking for a meeting. The company indicated the board would convene on Dec. 11, 2020, to consider the meeting request.
Meeting notes marked “confidential” and “attorney-client privileged” show board chairman Gary Yager, a Topeka banker, informed the board he had asked attorneys to draft changes that would eliminate the threat posed by Troilo and Leiszler.
Yager and another board director, longtime lobbyist Nancy Zogleman, had met privately with Kansas Insurance Commissioner Vicki Schmidt and her legal counsel, Justin McFarland, “to ensure they were comfortable with the proposed action,” according to the meeting notes.
There was no advanced notice that the board would consider amending the company’s bylaws. The six appointed board directors approved the changes: Yager, Zogleman; Borchers; former Republican state Sen. Ruth Teichman; Angela McClure, who works for a Lawrence construction company; and Shawn Naccarato, an administrator at Pittsburg State University.
After the meeting, Troilo and Leiszler asked the insurance commissioner to intervene. McFarland told them it was “a regulatory matter that the department should or can get involved in.” However, in an interview with Kansas Reflector for a story published in October, McFarland said “the insurance department’s position is the amended bylaws did not violate the statutes.”
The judge disagreed, saying the facts of the case “are pretty basic.”
“If the appointed directors had not taken the additional steps to give super-powers to themselves, at the expense of the elected member directors, the governor and the commissioner, then the exercise of the court’s discretion would be a closer call,” Woolley wrote. “The 2020 amendments not only took powers from the members, the 2020 amendments marginalized the power of the elected directors.”
Because the board didn’t have the authority to pass amendments to the bylaws, Wooley wrote, the changes “have no legal effect.”
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