Court Backs FHP Managers in Donation Case : Litigation: The state attorney general can’t order the firm to give $80 million to charity for ending its non-profit status.

FOUNTAIN VALLEY —  A state Court of Appeal has ruled that the state attorney general lacks authority to order officers of FHP International Corp., the operator of a health maintenance organization, to donate $80 million to charity.

The state attorney general’s office filed a lawsuit in December, 1986, charging that a group of FHP managers failed to donate a reasonable amount to charity after they bought the nonprofit organization in November, 1985, for $38.4 million in cash and notes.

Under state law, trustees of a nonprofit health maintenance organization can change it to for-profit status if they donate to charity an amount equal to the fair value of the company.

FHP managers donated $38.4 million to the FHP Foundation after acquiring the company in November, 1985, but raised more than $100 million in an initial public stock offering in June, 1986. The state attorney general then demanded that the managers pay an additional $80 million to charity.

However, a Los Angeles Superior Court judge in 1988 determined that a 1975 statute had transferred regulatory authority over health maintenance organizations from the state attorney general to the state Department of Corporations, which has found no fault with FHP’s charity payment.

The state Court of Appeal in Los Angeles on Monday upheld the lower court’s decision. Yeoryios Appallas, a deputy attorney general working on the case, declined to comment Tuesday because he had not yet seen the court’s written opinion. He said he wasn’t certain whether the attorney general will try to get the state Supreme Court to hear the case.