The appeal, filed by attorney Edward Stone and the Christensen & Jensen law firm on behalf of 18 of the shortfall victims (objectors), also alleges Judge Galasso erred in granting immunity and injunctive protection to the New York Superintendent of Financial Services (Superintendent) in his capacity as ELNY's receiver (Receiver).
The objectors' appellate brief requests the appellate court to reverse the ELNY liquidation order in its entirety or, in the alternative, to reverse the paragraphs granting immunity and injunctive relief to the Superintendent and his agents including the New York Liquidation Bureau (NYLB).
The appellate brief alleges the objecting ELNY shortfall victims were denied their due process to a fair hearing because of a lack of reasonable notice and necessary information and the selective application of civil practice law and rules.
Due process, according to authorities cited in the objectors' appellate brief, requires:
- At a minimum, notice and an opportunity to be heard before a person is deprived of a property interest; and
- Balancing (1) the interests of the parties to the dispute; (2) the adequacy of the contested procedures to protect those interests; and (3) the government’s stake in the outcome.
Looking first at the interests of the parties to the dispute, the objectors maintain:
- The shortfall payees have a "substantial interest" in a fair hearing because of: 1) their anticipated shortfalls and related financial and medical hardships; 2) their concerns about the future management of their remaining ELNY assets under a viable plan; and 3) their concerns that the Superintendent, whom they allege was responsible for their ELNY shortfalls, will continue to exercise supervisory responsibilities under the proposed ELNY restructuring plan.
- When acting in their capacity as receiver, the Superintendent and the NYLB are not acting as government agencies. Their interests are limited to protecting the policyholders, creditors, and the public including the ELNY shortfall payees. Their interests in a fair hearing should be extremely high - the same as the shortfall payees. Conversely, the burden of a fair hearing on the Superintendent and the NYLB would have been minimal.
- The government also has a high interest in a fair ELNY hearing in order to protect the integrity of the statutory receivership system as well as the financial well-being of 1456 individuals some of whom could become public charges as a result of their ELNY benefit reductions.
The ELNY shortfall victims were denied due process, according to the objectors, because the procedures afforded the ELNY shortfall victims were unfair and prejudicial:
- The notices were inadequate and misleading.
- The time allowed, and the lack of access to information, were unreasonable.
- Judge Galasso selectively applied procedural rules to the detriment of the ELNY shortfall payees.
The objectors allege Judge Galasso and the ELNY liquidation court lacked subject matter jurisdiction and otherwise erred in granting judicial immunity to the Superintendent (along with his employees, agents and attorneys), acting as ELNY's receiver, in their personal capacities because:
- The New York Supreme Court, as a liquidation court, does not have jurisdiction under Article 74 of the New York insurance statute to prospectively adjudicate claims or issue orders not involving ELNY's assets. Claims against the Superintendent, as Receiver, or others in their personal capacities are not claims against the ELNY estate.
- The scope of the ELNY Liquidation Order’s immunity provision is unsupported by and unprecedented under New York law which provides immunity for acts taken “in good faith” and "with appropriate care and prudence.” Conversely, the ELNY liquidation order confers immunity for virtually every act or omission the Superintendent has ever undertaken, whether in an official or personal capacity, or whether in bad faith or violation of a court order.
Permanent Injunctive Relief
The objectors allege Judge Galasso and the ELNY liquidation court lacked jurisdiction and otherwise erred in granting permanent injunctive relief to the Superintendent (along with his employees, agents and attorneys), acting as ELNY's receiver, in their personal capacities because:
- The injunction provision of Article 74 of New York's insurance law applies to an action against the insurer (ELNY) or the insurer's assets not to an action against the Superintendent, as ELNY receiver, in his personal capacity.
- A receiver is judicially immune from liability if he acts in good faith and with appropriate care and prudence. Therefore, the only actions effectively enjoined by Judge Galasso's liquidation order are actions where the Superintendent, as ELNY's receiver, breached his fiduciary or other duties.
- The Superintendent did not offer any evidence that his property rights would be irreparably harmed absent the injunction.
Briefing Schedule and Additional ELNY Reporting
As reported in S2KM's recent ELNY Update, the Superintendent, as ELNY Receiver and Respondent, and attorney Stone, on behalf of Appellant/Objectors, have jointly agreed and requested calendar preference and an accelerated briefing schedule for this Appeal:
- September 7, 2012 - deadline for Respondent's brief to be served and filed.
- September 14, 2012 - deadline for Appellants' reply brief, if any, to be served and filed, with oral argument to be set by the Court as soon as practicable thereafter.
For S2KM's complete reporting about the ELNY liquidation, including a copy of the objectors/petitioners' appellate brief, see the structured settlement wiki.