Attorneys for Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), filed a Notice of Motion January 18, 2013 with the United States District Court Southern District of New York to:
- Stay the ELNY class action lawsuit pursuant to the Burford abstention doctrine; or, alternatively,
- Dismiss the ELNY class action complaint in its entirety with prejudice pursuant to Federal Rule of Civil Procedure (FRCP) 12(b)(6).
The Notice of Motion also states:
- In response to a letter and phone call from Superintendent Lawsky's attorneys setting forth reasons why the class action lawsuit should be dismissed, plaintiffs' attorneys communicated they would not amend their complaint prior to the filing of the motion; and
- Court rules require plaintiffs to file opposing affidavits or memoranda by February 1, 2013 and Superintendent Lawsky to file any replies by February 8, 2013.
Background and Related Legal Actions
- New York State Supreme Court Judge John M. Galasso approved an Order of Liquidation and Restructuring Agreement for ELNY on April 16, 2012 which were subsequently appealed by 18 ELNY structured settlement shortfall payees. Oral arguments in the appeal have been concluded and a decision is expected shortly.
- The ELNY class action, which was filed November 15, 2012, alleges mismanagement of ELNY during its 21 year rehabilitation by Superintendent Lawsky in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers, Metropolitan Life Insurance Company and Credit Suisse Group, AG as defendants.
- For S2KM's re-configuration of selected allegations from the ELNY class action complaint, see the "ELNY Allegation Timeline".
- In a related legal action, attorneys for Superintendent Lawsky have filed a separate Notice of a Motion with the Nassau County New York State Supreme Court to enjoin the ELNY structured settlement shortfall payees and their legal counsel from proceeding with their class action lawsuit and to hold the shortfall payees' legal counsel in contempt.
Supporting Legal Memorandum
In support of Superintendent Lawsky's motion to stay or dismiss the ELNY class action lawsuit, his attorneys also filed an accompanying memorandum of law (legal memorandum) plus a declaration with exhibits.
The legal memorandum filed with the Superintendent's Notice of Motion characterizes the class action complaint as:
- Seeking "to circumvent ongoing proceedings in the New York Supreme Court that are subject to New York’s comprehensive Insurance Law, and thereby make an end run around that court’s anti-suit injunctions and other rulings" and
- "[A]n attempt to obtain a preference over other ELNY creditors, which New York law prohibits and they and their counsel were unsuccessful in obtaining from the Receivership Court."
Burford Abstention Argument
Superintendent Lawsky's legal memoradum argues that a Burford abstention is warranted as "the Second Circuit repeatedly has held in suits involving the Superintendent during pending Article 74 proceedings." This case, according to the Superintendent's attorneys, satisfies four factors the Second Circuit has previously recognized in determining whether a Burford abstention is appropriate:
- Specificity - New York Insurance Law Article 74 is specific and comprehensive and has “particularly detailed provisions concerning [insurance company] rehabilitation and liquidation.”
- Substantial state concern - New York Insurance Law’s rehabilitation and liquidation provisions constitute “a matter of special state concern.” Continuation of the ELNY class action lawsuit "would disrupt New York’s unified administrative and judicial framework for the administration of the estates of insolvent insurance companies.”
- Debatable construction - Continuation of the ELNY class action lawsuit would require the U.S. District Court to determine how Article 74's priority rule "requires any recovery to be apportioned." It would undoubtedly result in plaintiffs seeking "to collaterally litigate and debate issues related to Article 74 (some of which the Receivership Court already has ruled upon.)"
- Minimal federal interests - The ELNY rehabilitation has been ongoing for a long time and presents no issues of federal law while there has been no "relative progress of the federal action."
FRCP 12(b)(6) Argument
As an alternative argument, the Superintendent's legal memorandum maintains the plaintiffs' class action claims should be dismissed pursuant to FRCP 12(b)(6) "because they lack standing to assert their claims and, even if they had standing, the claims would fail for [four] additional reasons."
- Any alleged financial harm was sustained by the ELNY estate, and thus any claim belongs to the ELNY estate and not to individual creditors of the ELNY estate.
- Plaintiffs "fail to plead either a fraudulent omission claim with particularity or a plausible breach of fiduciary duty claim against Superintendent Lawsky." The class action complaint only mentions Superintendent Lawsky twice and neither allegation states a claim.
- Plaintiffs Jeanice Dolan’s and Keith Vincent’s claims are time-barred and plaintiff Daniel Malin’s fiduciary duty claim is not timely.
- The Receivership Court discharged Superintendent Lawsky from liability for the conduct plaintiffs alleged caused them harm.
For S2KM's complete and continuing coverage of the ELNY liquidation and related legal actions, see the structured settlement wiki.