Beyond Structured Settlements

NY Court of Appeals Denies ELNY Review

The New York State Court of Appeals (Court of Appeals), New York's highest judicial authority, has denied a Motion for Leave to Appeal a February 6, 2013 decision bythe Appellate Division of the Supreme Court of the State of New York, Second Department which rejected a legal challenge by Executive Life of New York (ELNY) structured settlement shortfall payees to the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The appeal challenging the merits of the ELNY Liquidation Order had raised three primary issues each of which the Court of Appeals' decision effectively rejected:

• Due Process - "Did inadequate notice and the denial of information to Objectors (ELNY structured settlement shortfall payees), along with the selective application of the Civil Practice Law and Rules, deny Objectors a fair hearing as required by principles of due process?"
• Immunity - "Did the Supreme Court exceed its subject matter jurisdiction or otherwise err in granting immunity to the Receiver and others in their personal capacities, where such immunity is not provided for by statute, is inconsistent with the common law, and is unsupported by evidence?"
• Injunction - "Did the Supreme Court exceed its jurisdiction or otherwise err in permanently enjoining claims against the Receiver and others in their personal capacities, where such injunction is not provided for by statute or the common law, and no evidence was adduced at the hearing?"

The Court of Appeals decision effectively ends litigation challenging the merits of the ELNY Liquidation Order and permits the National Organization of Life and Health Insurance Guaranty Association (NOLHGA) to proceed with the ELNY Restructuring Agreement including substantial annuity payment reductions for more than 1400 structured settlement recipients.

ELNY Contempt Order and Class Action Lawsuit

Another anticipated result of the Court of Appeals decision will be the filing of a brief by legal counsel for three ELNY structured settlement shortfall payees (objector respondents) to perfect their appeal of a Contempt Order issued January 25, 2013 by Judge Galasso. Based upon previous court filings and out-of-court statements, they are expected to argue that Judge Galasso's Contempt Order violates the United States Constitution.

Following Judge Galasso's Contempt Order, attorneys representing the structured settlement shortfall payees voluntarily dismissed their federal court ELNY class action lawsuit , without prejudice, preserving their right to refile claims and tolling the statute of limitations. At that time, shortfall payee attorney Edward Stone characterized the voluntary dismissal as a "strategic decision" attributable to the Contempt Order which left open the possibility of additional fines for continued legal efforts to protect ELNY shortfall payees.

In a letter written to United States District Judge Jesse M. Furman prior to the voluntary dismissal of the ELNY class action lawsuit, shortfall payee attorney Roger Christensen quoted from the 1964 United States Supreme Court decision in Donovan v. City of Dallas: "Early in the history of our country, a general rule was established that state and federal courts would not interfere with or try to restrain each others proceedings. That rule has continued substantially unchanged to this time."

Christensen's letter continued: "It could not be more clear that a state court cannot enjoin a federal action or use contempt proceedings to preclude citizens' attempts to have their claims heard in federal court."

The original class action Complaint named Jeanice Dolan, Daniel A. Malin, Keith Vincent, and other similarly situated ELNY shortfall victims, as plaintiffs, and Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants.

Based upon allegations of defendant misconduct (see: ELNY Allegation Timeline), the original class action Complaint requested the following damages and relief:

• "Damages equaling the full present value of each Class Member's annuity issued by ELNY, less any amount determined to be owing to Plaintiff under the terms of ELNY's liquidation;
• "Damages equaling the amount of each defendant's unjust enrichment and ill-gotten gains;
• "Attorney fees and litigation expenses, to the extent permitted by contract or law;
• "Pre- and post-judgment interest, to the extent provided by contract or law; and
• "Such other equitable relief as the Court deems appropriate."

For S2KM's complete reporting of the ELNY liquidation, see the structured settlement wiki.

 

ELNY Appeal Denied

The Appellate Division of the Supreme Court of the State of New York, Second Department, has denied an appeal challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The unanimous February 6, 2013 appellate decision:

• Dismissed the appeal;
• Affirmed Judge Galasso's order; and
• Awarded costs to Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services (petitioner-respondent) and NOLHGA (nonparty-respondent).

The appeal, filed May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors:

• Alleged Judge Galasso "erroneously denied objectors' request to reject the proposed agreement of restructuring in connection with the [ELNY] liquidation";
• Further alleged Judge Galasso's order:
  • "[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";
  • "[C]reates impermissible sub-classes of claimants"; and
  • "[R]eflects the courts erroneous denial of objectors' requests to adjourn the hearing ... due to a lack of proper notice of such hearing."
• Sought to compel:
  • The Superintendent, as ELNY's Rehabilitator, "to provide certain discovery necessary to, among other things, allow objectors to demonstrate why the plan should not be approved and submit a viable competing restructuring plan";
  • Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and
• Further sought to allow the objectors "to present evidence (in the form of live testimony by certain witnesses) rebutting the receiver's experts and otherwise showing that the proposed-liquidation plan should not have been approved."

The Appellate Court rejected all of these allegations and denied further relief.

The brief appellate opinion focused primary on due process issue. The Appellate Court stated: "[t]he fundamental requisite of due process of law is the opportunity to be heard" and concluded the ELNY shortfall payees had not been denied due process "either in the manner in which the notice was provided to them or in the conduct of the hearing."

Concerning due process, the Appellate Court reasoned: "The notice mailed to the last known addresses of the ELNY annuity payees was reasonably calculated to apprise them of the pendency of the liquidation proceeding and the execution of the proposed agreement, and to afford them an opportunity to be heard, and, thus, satisfied due process.... Moreover, the record does not support the contention that the hearing was "an unfair proceeding."

The appellate opinion summarily dismissed the immunity and injunction issues. "There is no merit to the contention that the Supreme Court lacked subject matter jurisdiction to include, in the order approving the agreement, provisions which granted the receiver for ELNY judicial immunity and preliminary injunctive relief," the Appellate Court stated. "Furthermore, such relief was appropriately granted in the order."

Additional ELNY Developments

The ELNY appellate court decision follows a civil contempt order issued by Judge Galasso January 25, 2013 in which he sanctioned legal counsel for three ELNY structured settlement shortfall payees for filing an ELNY class action lawsuit in the United States District Court Southern District of New York. The attorneys issued a press release January 28, 2013 announcing their plan to appeal the contempt order. The ELNY class action lawsuit is still pending despite arguments on behalf of Superintendent Lawsky seeking dismissal.

Addendum: subsequent to publishing this blog post, S2KM learned the ELNY class action lawsuit has been voluntarily dismissed without prejudice. Please see this S2KM blog post for details.

For S2KM's complete reporting about the ELNY liquidation and related litigation, see the structured settlement wiki.

Structured Settlements in 2012 - 4

Executive Life of New York

At one time or another, each of us may have become acquainted with individuals who have overcome personal injuries and successfully transformed their disabilities and special needs into special lifetime accomplishments. Kyle Walsh, profiled in a 2012 S2KM blog post, is one such individual. The late Randy Snow, featured in a 2008 S2KM blog series, was another.

Structured settlements are supposed to provide economic security for people with serious injuries and disabilities - to help them rebuild their lives and, in many cases, to achieve special lifetime accomplishments. Instead of an all-cash personal injury settlement, structured settlement recipients accept a promise of future periodic payments.

What happens, if and when, that promise is broken? What happens when a structured settlement funding company, and the regulators and guaranty system responsible for protecting the structured settlement recipients, fail to make and/or insure full payment?

These questions are highlighted by the Executive Life of New York (ELNY) liquidation - the dominant structured settlement story of 2012 and one of the most important developments in the history of the United States structured settlement industry.

The story of ELNY, as well as its affiliate Executive Life of California (ELIC), and their parent company, First Capital Corporation (FEC), is long and complex. For background of events prior to ELNY's 1991 receivership, S2KM recommends Gary Schulte's 1992 book "The Fall of First Executive".

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent. When then New York's Insurance Commissioner Salvatore Curiale seized control of ELNY on April 16, 1991 and placed it in receivership, he stated: "The company is currently neither in an insolvent or impaired condition. . . . I have not petitioned the Court to make a finding of insolvency. ELNY is a company well able to meet its current obligations."

Exactly twenty-one years later, on April 16, 2012, following 11 days of hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso approved an Order of Liquidation and a Restructuring Agreement for ELNY as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver, and the National Organization of Life and Health Guaranty Funds (NOLHGA).

The result of the ELNY Liquidation Order and Restructuring Plan, even following contributions from state guaranty funds and voluntary life insurance company contributions, is a $900 million shortfall allocated entirely (and arguably inequitably) to more than 1400 ELNY payees out of a total of approximately 9700 current ELNY payees. The remaining ELNY payees expect to receive 100 percent of their promised future payments. The average individual shortfall is estimated to exceed $600,000 present value. Although an ELNY Hardship Fund has been created, it has not yet been funded.

An appeal was filed May 30, 2012, on behalf of 18 ELNY structured settlement shortfall payees, challenging the ELNY liquidation order and restructuring agreement on the basis of due process. The appeal also alleges that immunities and injunctions granted under the liquidation order are improper. Oral arguments occurred on November 15, 2012 in Brooklyn before the Appellate Division of the Supreme Court of the State of New York, Second Department. No decision has been announced.

Another legal challenge to the ELNY liquidation order occurred June 14, 2012 when attorneys for several liability insurers filed a Motion asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. The motion indirectly raises the issue of whether qualified assignments extinguish the liability of defendants and/or liability insurers for shortfall payments resulting from the ELNY liquidation? Judge Galasso denied the Motion without further explanation. 

In a subsequent development, somewhat related to the liability insurers' motion, the ELNY website announced an ELNY Facilitation Plan to assist owners of ELNY structured settlement annuities (SSAs) make supplemental payments to ELNY SSA payees and to coordinate those payments with the ELNY benefit payments scheduled to be made by the Guaranty Association Benefits Company (GABC) under the ELNY Restructuring Plan approved by Judge Galasso on April 16, 2012 as part of the ELNY liquidation order.

The same attorneys who filed the ELNY appeal, Edward Stone and representatives of the Christensen & Jensen law firm, filed a class action lawsuit November 8, 2012, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, and his predecessor ELNY Rehabilitators, as well as MetLife and Credit Suisse. The class action allegations provide a critical litany of mismanagment and non-disclosure during the 21 years ELNY's estate was being supervised by these defendants.

In response, attorneys representing Benjamin M. Lawsky, in his capacity as ELNY's Receiver, filed a Notice of a Motion with the Nassau County New York State Supreme Court requesting oral argument on January 4, 2013 at 9:30 a.m. or as soon thereafter as the parties may be heard:

• to enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit in the United States District Court Southern District of New York;
• to hold in contempt of court the shortfall payees' legal counsel; and
• to require their payment of the related costs and attorney's fees incurred by the Superintendent.

Although the ELNY liquidation has so far received limited coverage in the mainstream media, specialty insurance experts and analysts have not been silent. Examples:

• Peter Bickford - In his article titled "The Elephant in the Court Room" (summarized here by S2KM), Bickford argues New York’s receivership system has failed ELNY, its policyholders and beneficiaries, as well as the insurance industry and its customers due to a lack of basic accountability standards. Although the ELNY restructuring plan may solve the immediate ELNY problem (at the expense of the remaining ELNY shortfall victims), Bickford maintains it does not address the broader, underlying systemic defects inherent in the New York life insurance receivership system. Without an act of the New York legislature, according to Bickford, "there will be no life insurance guaranty fund coverage in New York" following ELNY. Bickford's article also provides succinct summaries of objections raised by ELNY shortfall victims and ELNY legal issues which he states "could linger in the courts for years"
• LifeHealthPro - In an article titled "The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", (summarized here by S2KM), the authors assign primary blame for ELNY insolvency to the NYLB which they describe as "a rogue agency known for its codes of secrecy and characterized by many who spoke for this story as ineffective and mismanaged at best, and a snake pit of corruption at worst". In a companion article (reviewed here by S2KM), writer Warren Hersch asks: "is the structured settlement process in need of reform"?  In a follow-up oped article titled "Governor Cuomo I'm Calling You Out", (summarized here by S2KM), Bill Coffin, LifeHealthPro's Group Editor, charges New York Governor Andrew Cuomo with personal responsibility to clean up the "ELNY debacle".

The final results of the ELNY liquidation will depend upon the outcome of the continuing litigation highlighted in this article. It also remains to be seen what reforms, if any, will result from the failed ELNY receivership process.

In conclusion, it should also be noted that ELIC-related litigation continued in 2012 (Garamendi v. Altus Finance S.A.) when a federal jury in Los Angeles rejected a claim by California's Insurance Commissioner that, but for a conspiracy by French investor group Artemis S.A.:

• ELIC's original conservator (then California insurance commissioner John Garamendi) would have accepted an alternative bid in 1991 by state insurance guaranty associations; and
• The alternative bid would have retained profits from ELIC's junk bond portfolio for the benefit of policyholders including ELIC structured settlement recipients.

For S2KM's complete and continuing reporting about the ELNY liquidation, see the structured settlement wiki.

This blog post completes S2KM's series "Structured Settlements in 2012":

• Part 1 - Primary market
• Part 2 - Settlement planning
• Part 3 - Secondary market
• Part 4 - Executive Life of New York

ELNY Allegation Timeline

The Executive Life of New York (ELNY)  class action lawsuit , filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, and his predecessor ELNY Rehabilitators (Superintendent and/or Rehabilitator), MetLife and Credit Suisse, substantially expands the historical allegations of post-1991 ELNY mismanagement and non-disclosure. 

What follows is S2KM's re-configuration of selected allegations from the class action complaint into an ELNY "allegation timeline".

For persons seeking more comprehensive understanding of alleged mismanagement of ELNY during its 21 year rehabilitation, S2KM recommends reading the ELNY class action complaint which is posted on the structured settlement wiki. The following S2KM blog posts provide additional critiques of the New York Liquidation Bureau's (NYLB) role in ELNY insolvency:

• Elephant in the ELNY Courtroom - S2KM's summary of Peter Bickford's article.
• NYLB Role in ELNY Disaster -  highlighting allegations in the National Underwriter article "The Complete ELNY Saga"

ELNY Class Action Allegation Timeline

April 16, 1991

• New York's Insurance Superintendent Salvatore Curiale states: "[ELNY] isn't insolvent and has ample cash on hand to pay life insurance death benefits and meet annuity payments."
• Curiale further states: "The company is currently neither in an insolvent or impaired condition. . . . I have not petitioned the Court to make a finding of insolvency. ELNY is a company well able to meet its current obligations."

April 23, 1991

• ELNY Rehabilitation Court enters an Order of Rehabilitation which prohibits "all" persons, including the Rehabilitator, from "doing or permitting to be done any act or thing which might waste the assets" of ELNY.
• Under ELNY's Order of Rehabilitation, no more than 30 percent of ELNY's assets can be invested in common stock at any given time. This 30 percent cap is 50 percent higher than the percentage allowed by active insurance companies.
• Consistent with normal practice, Superintendent Curiale, ELNY's Rehabilitator, delegates most of his ELNY rehabilitation duties to the New York Liquidation Bureau [NYLB], directed by a Special Deputy Superintendent who in 1991 is Kevin Foley.

May 17, 1991 - In a letter to ELNY policyholders, the Superintendent confirms the sole basis for ELNY's rehabilitation has been the risk of policy surrenders. The letter further states the Superintendent is "presently analyzing the assets and liabilities of ELNY[.]"

June 7, 1991 - NYLB files a petition, which the Rehabilitation Court approves to retain First Boston Corporation (First Boston) as ELNY's exclusive financial advisor.

• The court also approves an investment advisory and management agreement with a First Boston affiliate providing for the payment of multi-million dollar fees.
• First Boston (and its successor/purchaser Credit Suisse) subsequently invests ELNY's assets in violation of its contractual obligations, in violation of the court's order, in violation of its representations to the NYLB and the court, and in violation of its fiduciary duties to ELNY shortfall payees.
• Instead, First Boston and Credit Suisse engage in a pattern of risky investments that generate high management fees and place ELNY's assets at considerable risk.
• Note: Credit Suisse acquired First Boston Corporation in 1990 but did not phase out the First Boston name until 2006.

June 1991 - The Superintendent contacts the Life Insurance Guaranty Corporation of New York (LIGCNY) to discuss the disposition of ELNY. MetLife, the largest domiciled insurance company in New York, has a lead position in LIGCNY and receives information about ELNY that is not available to other insurers generally or to the public.

Between June and November 1991

• NYLB enters into discussions with MetLife. Deputy Superintendent Foley is the principal person representing NYLB in these discussions.
• Under an agreement ultimately approved by the Rehabilitation Court, MetLife receives more than $1.5 billion of ELNY's traditional whole life, term life and single premium deferred annuity books of business plus $1.5 billion of ELNY's highest-quality assets.
• NYLB takes several steps to prevent competitive bids from other insurers.
• The products transferred to MetLife include 52,748 single premium deferred annuities and 80,891 life insurance policies. This large book of business allows MetLife to increase its assets by more than $1 billion at essentially no risk.
• In addition to receiving cash, MetLife is allowed to pick and choose from among ELNY's bonds and to charge "substantially higher surrender charges" than allowed under the ELNY contracts.
• Part of the agreement with MetLife includes retention of MetLife to service ELNY's remaining SPIAs (including structured settlement annuities) with a monthly fee of $5.50 per payee if payments begin before the last day of any month and $2.50 per payee if payments have not begun.
• Under this arrangement, ELNY's true liabilities are ascertainable only by NYLB and MetLife, the only entities with access to the annuity contracts.

October 9, 1991 - In a letter to ELNY policyholders and annuitants, the Superintendent reiterates the original ELNY takeover was due to surrender requests and further states: "it remains our belief that ELNY policyholders, annuitants and contract holders will receive 100% of the amounts due them under any of the options chosen as part [of] the rehabilitation plan. ... Please be assured that your money is being well protected and conservatively invested by the Rehabilitator."

January 21, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states he is proposing a transfer of assets to MetLife and that "[t]he contemplated exchange and reinsurance agreements [with MetLife] would place you in a substantially similar position as you were at the time of the entry of the Rehabilitation Order."

March 26, 1992 - To implement the agreements with First Boston and MetLife, NYLB submits a proposed ELNY Rehabilitation Plan which the court approves.

• First Boston represents to the court the only possible course of action is to transfer virtually all of ELNY's investment grade assets to MetLife in exchange for MetLife assuming ELNY's obligations to only part of its policyholders.
• First Boston and NYLB represent that with First Boston's management of ELNY's assets, it is more than 90% certain the remaining ELNY assets will be sufficient to meet 100% of ELNY's obligations.
• Superintendent Curiale represents that, following "an extensive and detailed analysis ... Petitioner, as Rehabilitator, determined that the transaction proposed in the Plan would not impose any unwarranted or unreasonable risks on ELNY's SPIA holders, creditors or shareholders."
• Deputy Superintendent Foley states that, after the transfer, "we will make continued full payment" to annuitants, that he is "fully confident that these payments can and will be made," and that it is a "100 percent guarantee."
• NYLB represents that ELNY's remaining assets and liabilities will be approximately equal after the transfer of assets to MetLife. In fact, after the highest-value assets are transferred to MetLife, ELNY's remaining assets are less that its fixed liabilities by at least $300 million.
• From 1992 until 2010, the NYLB never files any reports with or otherwise updates the ELNY Rehabilitation Court with respect to ELNY's annuities.

April 13, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states the proposed transfer of assets to MetLife "best protects all classes of ELNY policyholders and provides security, value, fairness, timeliness and practicality."

During 1992 - The Superintendent conducts "an extensive and detailed," "careful and exhaustive," "comprehensive" "full study" of ELNY's assets and liabilities and afterward reaffirms that ELNY is solvent.

• Following the transfer to MetLife, ELNY retains 23,666 annuity contracts in force and approximately $3.3 billion of assets.
• Foley acknowledges, under the deal, MetLife received "extremely high quality assets" and ELNY was left with lower-quality assets.
• Foley predicts the ELNY rehabilitation process will take "four or five years" or possibly less.
• NYLB asks Milliman & Robertson [M&R] to render actuarial opinions regarding the sufficiency of ELNY's remaining assets based upon certain assumptions and investment strategies.
• M&R does not audit or independently verify any of the information or assumptions provided to it.
• Based upon the assumptions provided by NYLB and First Boston, NYLB represents:
  • "[T]he investment strategy adopted by [the Superintendent] does not impose any unreasonable risks on ELNY's SPIA holders, creditors or shareholders."
  • "[I]n more than 90 percent of 500 randomly generated interest rate scenarios under ... base case assumptions, ELNY's SPIA obligations are satisfied in full."
  • "Under the M&R study, the projected cash flows from the remaining assets [are] sufficient to meet 95% of the SPIA obligations under approximately 99% of the scenerios tested using ... base case default, recovery, yield and rate of return assumptions."

1996 - NYLB for the first time refuses unrestricted access by the New York State Comptroller's office (Comptroller) to its records and personnel.

• The Comptroller reports: "During our work, Department and Bureau officials prevented auditors from examining relevant records related to the liquidation of one estate and employee personnel-related records. Our audit was precluded from interviewing agency managers and operating personnel without senior management present, thereby creating an environment where those individuals could not speak freely."
• Prior to its takeover of ELNY, NYLB had generally cooperated with audits requested by the Comptroller's office.
• For example, no limitations were placed on the Comptroller in 1976, 1984, or 1990.
• In 1994, the Comptroller performed a follow up audit limited to items that had not been reviewed in 1990.

1998 - Common stock comprises 38 percent of ELNY's portfolio exceeding the 30 percent limit set by the 1991 Order of Rehabilitation. 

1999

• A NYLB representative states it could take up to 100 years before ELNY is finally liquidated.
• Former Deputy Superintendent Foley begins employment with MetLife as its Vice President of External and Internal Communications.

2000

• Common stock comprises as much as 44 percent of ELNY's investment portfolio.
• ELNY's common stock portfolio loses hundreds of millions of dollars, nearly one-third of its value.

2001

• In a meeting with a potential ELNY investor representative, the then Deputy Superintendent states: "Why would we want to sell [ELNY] when we can sit here and clip coupons all day."
• ELNY's common stock portfolio drops another 13 percent.

2002 - ELNY's common stock portfolio drops another 19 percent.

2004 - The NYLB refuses a Comptroller request to perform a comprehensive audit to include a review of ELNY's assets and liabilities.

July 23, 2004 - The Comptroller issues subpoenas related to the proposed NYLB audit.

November 17, 2004 - The Superintendent files suit to quash the subpoenas.

June 30, 2005 - A New York Supreme Court quashes the subpoenas, and the Comptroller appeals.

Late 2005 or early 2006

• Then-New York Attorney General Eliot Spitzer campaigns for Governor on an anti-corruption platform.
• NYLB officials approach NOLHGA and the two entities begin working on a plan to liquidate ELNY without informing the Rehabilitation Court or ELNY's policyholders and annuitants of ELNY's insolvency.
• Under this plan, more than 1400 ELNY annuitants would suffer reduced payments of up to 66 percent.

August 2006 - Then-Special Deputy Superintendent Jody Hall, who has responsibility for NYLB, is fired for suspected corruption. She later pleads guilty and is convicted.

November 2006 - Governor-elect Spitzer identifies an investigation of the NYLB as an important priority for his administration.

2007

• On at least three occasions prior to 2007, groups of potential investors advise the Superintendent of an interest in purchasing ELNY's assets and liabilities. On each occasion, the Superintendent directly interposes impediments to the performance of due diligence and other investment-related activities.
• NYLB personnel begin contacting insurance companies and others, such as purchasers of structured settlement payment rights, demanding they contribute money to shore up ELNY or face punitive actions by the New York Department of Insurance.

January 2007 - Governor Spitzer appoints Mark Peters as the new Superintendent.

March 6, 2007 - The New York Appellate Division rules the Comptroller can enforce its subpoenas against NYLB.

May 2007 - Superintendent Peters announces NYLB will be subjected to a "top to bottom" audit by an independent auditor for the first time in NYLB history. The auditors discover the NYLB's financial records are in complete disarray requiring the NYLB to "reconstruct" the financial records of all 60 estates under its supervision.

October 11, 2007 - In Dinallo v. DiNapoli , the New York Court of Appeals holds that, in his capacity as rehabilitator/liquidator of insurance companies, the Superintendent is not a state officer. Therefore, acting as the Superintendent's agent, the NYLB is not a state agency and is not subject to audit by the New York State Comptroller.

December 2007

• NYLB personnel inform Governor Spitzer that a deal has been reached with insurance companies and others assuring 100 percent payment to ELNY policyholders and/or annuitants.
• Unknown to Governor Spitzer, no deal has been reached. Instead, the NYLB is still working privately with NOLHGA on the plan to liquidate ELNY.
• Governor Spitzer announces an "agreement in principle" for ELNY, subject to approval by ELNY's Rehabilitation Court. The agreement is designed to:
  • Continue paying all ELNY annuitants 100% of their benefits;
  • Provide protection for approximately 11,000 ELNY annuity recipients including structured settlement recipients.
• The announced plan, whereby various insurers and guarantee associations apparently agree to pay $650 to $750 million to help fund $2 billion of future ELNY payments, never materializes.

October 2008 - Independent auditors discover NYLB has been understating ELNY's shortfall by more than $1 billion for years. Examining ELNY's estate as of December 31, 2006, the auditor concludes ELNY's liabilities exceed its assets by $1.26 billion.

March 18, 2009 - without notification to ELNY policyholders and annuitants, Judge Daniel Martin signs an Order allowing NYLB to:

• Replace Credit Suisse as ELNY's investment advisor with Wellington Management Company and Goldman Sachs Asset Management; and
• "[F]rom time to time amend the [Investment] Guidelines set by the Rehabilitator in consultation with his new financial advisors if the Rehabilitator deems it beneficial to ELNY."

December 17, 2010 - State Supreme Court Judge Galasso orders the Superintendent to present the Court with a proposed order and plan of liquidation for ELNY on or before July 1, 2011 after the Superintendent confers with the New York Life Insurance Company Guaranty Corporation and other interested parties.

June 23, 2011 - The Superintendent files a motion to postpone the deadline for filing a proposed order and plan of liquidation for ELNY from July 1, 2011 to August 10, 2011 "in order to present a comprehensive and consensual proposed Plan of Liquidation that maximizes the potential benefits for ELNY's structured settlement and other annuitants."

August 8, 2011 - Counsel for the Superintendent advises the court the Superintendent 'is not in a position to submit a consensual proposed order and plan of liquidation on or before August 10, 2011" as previously promised. Instead, he anticipates the Superintendent doing so on or about August 26, 2011.

October 3, 2011 - Governor Andrew Cuomo creates the New York Department of Financial Services by consolidating the New York Insurance and Banking Departments. The Superintendent of Financial Services becomes the court appointed fiduciary and Receiver/Rehabilitator of ELNY as well as other impaired and insolvent insurance companies in New York.

December 2011 - NYLB:

• Files an ex parte motion stating its intent to liquidate ELNY.
• Notifies ELNY shortfall payees for the first time that their benefits will be cut.

March 2012 - Following a hearing, Judge Galasso determines ELNY is insolvent and approves the liquidation plan and restructuring agreement upon which NYLB and NOLHGA have been collaborating since 2006.

• Under the plan, ELNY shortfall payees face a potential loss of benefits exceeding $920 million.
• During the hearing, NYLB successfully prevents shortfall payees from exploring the causes of ELNY's insolvency.
• The order approving the ELNY liquidation plan and restructuring agreement is currently being appealed.

 

ELNY Appeal - Oral Arguments

Two Executive Life of New York (ELNY) legal actions are currently in process:

• ELNY Appeal - Oral arguments occurred on November 15, 2012 in Brooklyn before the Appellate Division of the Supreme Court of the State of New York, Second Department challenging the Executive Life of New York (ELNY) Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.
• ELNY Class Action - Attorney Edward Stone and representatives of the Christensen & Jensen law firm filed a class action lawsuit November 8, 2012 on behalf of ELNY shortfall victims in the United States District Court Southern District of New York against defendants Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Superintendent/Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

ELNY Appeal

The appeal, filed May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors:

• Alleges Judge Galasso "erroneously denied objectors' request to reject the proposed agreement of restructuring in connection with the [ELNY] liquidation";
• Further alleges  Judge Galasso's order:
  • "[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";
  • "[C]reates impermissible sub-classes of claimants"; and
  • "[R]eflects the courts erroneous denial of objectors' requests to adjourn the hearing ... due to a lack of proper notice of such hearing."
• Seeks to compel:
  • The Superintendent, as ELNY's Rehabilitator, "to provide certain discovery necessary to, among other things, allow objectors to demonstrate why the plan should not be approved and submit a viable competing restructuring plan";
  • Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and
• Further seeks to allow the objectors "to present evidence (in the form of live testimony by certain witnesses) rebutting the receiver's experts and otherwise showing that the proposed-liquidation plan should not have been approved."

Appellate Briefs

S2KM previously summarized:

• Objectors' appellate brief
• Arguments in the objectors' preliminary brief:
  • Due process
  • Immunity
  • Injunction
• Arguments in the Superintendent's brief and the objectors' reply brief:
  • Due process
  • Immunity
  • Injunction

Oral Arguments

S2KM did not attend the ELNY oral arguments in Brooklyn, N.Y. The following reporting notes were provided to S2KM by structured settlement shortfall payees, and their attorney Edward Stone, who did attend the oral arguments and includes their opinions and observations.

The four appellate judges who heard the oral arguments appeared to understand the complexity of the issues on appeal:

• Associate Justice Mark C. Dillon
• Associate Justice Sandra L. Sgroi
• Associate Justice Cheryl E. Chambers
• Associate Justice Robert J. Miller

Each briefing attorney summarized his/her arguments then responded to questions from the judges:

• Karra J. Porter - for the ELNY shortfall payees.
• Steven M. Bierman - for the Superintendent.
• Kevin P. Griffith - for NOLHGA.

At least a dozen attorneys supporting the ELNY liquidation plan approved by Judge Galasso attended the oral arguments, many at the expense of the ELNY victims.These attorneys included several each representing the Superintendent and NOLHGA.

Appearing on behalf of the ELNY shortfall payees, attorney Porter focused her comments on lower court proceedings that denied ELNY shortfall payees their basic due process rights including the right to verify information the Superintendent and NOLHGA relied upon in formulating their restructuring plan.

Porter also addressed the scope of immunity, if any, to be accorded the Superintendent under New York law. She asked the panel to hold the Superintendent's ELNY conduct to the same standard applicable to all private receivers: good faith and appropriate care and prudence. She argued there is no basis in either New York or common law for the immunity and injunctive relief Judge Galasso granted to the Superintendent and his agents.

Appearing on behalf of the Superintendent, attorney Bierman claimed the ELNY shortfall payees had been afforded a fair hearing and noted Judge Galasso had determined the ELNY liquidation and restructuring plan were appropriate under the circumstances. Bierman insisted the Superintendent represented all of the ELNY shortfall victims and acted in their best interest.

Bierman never referenced or attempted to refute evidence that the Superintendent and his agents mismanaged the ELNY estate. Instead, he characterized as "galling" that ELNY shortfall payees would challenge the results of the ELNY liquidation hearing and added "no good deed goes unpunished".

Understandably, the ELNY shortfall victims who attended the oral arguments strongly disagree with attorney Bierman as to what is "galling" about the ELNY rehabilitation, liquidation hearing and restructuring plan. What is "galling" to ELNY shortfall victims:

• The Superintendent's claim that he acted in their best interests.
• The Superintendent's gross mismanagement of the ELNY estate.
• Judge Galasso's denial of their basic due process rights.
• Judge Galasso's grant of immunity and injunction to:
  • Protect the Superintendent and his agents from lawsuits; and
  • Prevent meaningful verification of the Superintendent's assertions.

The judges seemed disinterested in the due process arguments presented by attorney Griffith on behalf of NOLHGA, according to the ELNY shortfall payees who attended the oral arguments. The only question asked: "Wasn't it always the obligation of NOLHGA's state guarantee association members to pay their coverage amounts to the ELNY shortfall payees?"

A decision in the ELNY appeal is expected by year end 2012.

For additional notes about the ELNY oral arguments, see attorney Edward Stone's website.

NYLB Role in ELNY Disaster

The comprehensive analysis of the Executive Life of New York (ELNY) liquidation published last week by the National Underwriter Life & Health magazine on its LifeHealth Pro website describes a "slow-motion disaster of gross mismanagement" the magazine claims will result in severe collateral damage not only to hundreds of ELNY structured settlement shortfall victims but also to the life insurance industry more generally.

In its lead article, titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the National Underwriter report intersperses profiles of five ELNY structured settlement shortfall victims with an historical summary of the 21 year ELNY rehabilitation and liquidation process.

The historical summary concludes:

• "[T]he ELNY rehabilitation, restructuring and liquidation have been nothing short of disastrous. Not only did regulators fail to protect a company from being dis-mantled by its insolvent parent, it failed to adequately manage the company from Day One. It failed its self-appointed fiduciary duty to serve ELNY’s payees. It failed to act with integrity, and it failed to uphold the social compact between insurers and their customers that if the money needs to be there, it will be there. Always. Without fail. Without exception."
• "At every single turn with ELNY, there was failure after failure to uphold the public’s trust. The state of New York, and especially the New York Liquidation Bureau, so badly disrupted the leap of faith between insurer and insured that the ripples will be felt for years to come, as every one of ELNY’s shortfall payees tells anyone who will listen that insurance and annuities are not worth it. That the money will not be there when it is needed, that the government will not protect the public." (emphasis added)
  

The National Underwriter article challenges the conventional explanation of ELNY's downfall which S2KM reported previously in "The Fall of First Executive".  Instead, it assigns primary blame to the New York Liquidation Bureau (NYLB), the non-government entity to which the New York Insurance Superintendent delegated ELNY management responsibilities beginning in 1991.

Describing the NYLB as "a rogue agency known for its codes of secrecy and characterized by many who spoke for this story as ineffective and mismanaged at best, and a snake pit of corruption at worst", the article highlights many examples of alleged mismanagement and lack of disclosure related to the ELNY liquidation:

• Failure to prepare and/or maintain any financial reports for ELNY for the years 1990, 1991 and 1992.
• The 1991 decision to sell almost all of ELNY's non-structured settlement business along with its non-junk bond investment portfolio to MetLife.
• Predicating the rehabilitation plan on unrealistic assumptions such as 30-year U.S. government treasuries maintaining an average interest rate of nine-and-a-half percent.
• Selling ELNY's high yield bond portfolio for a steep discount in 1991 at the bottom of the "junk bond" market.
• Reinvesting the proceeds in an unsafe percentage of common stocks vs. more conservative bonds.
• Increasing ELNY gross liabilities by $500 million between 1999 and 2000 based upon questionable assumptions and without due diligence.
• Reporting discrepancies and irregularities including incorrect numbers of policyholders and thousands of purported policyholder birth dates after ELNY entered rehabilitation.
• Excessive NYLB staffing with dozens of administrators for ELNY despite contracted services for ELNY's claims (MetLife), asset management (Credit Suisse) and accounting (Milliman & Robertson).
• Alleged corruption resulting in the dismissal of NYLB superintendent Jody Hall in 2006 at a time when Hall allegedly "was making persistent efforts to examine the elusive financial records on ELNY". Note: the National Underwriter provides additional related details in a companion article titled "The Aborted New York Liquidation Bureau Investigation".
• NYLB's alleged "culture of secrecy" exemplified by:
  • Disclaimers on ELNY financial reports stating that conclusions drawn by anyone except NYLB would be “materially misleading.”
  • Conditional bonuses, paid out of estates under NYLB management, requiring NYLB retirees to sign non-disclosure agreements prohibiting comments about non-public NYLB information.
• A damning description of the NYLB in its own 2007 annual report stating that the Bureau:
  • Had "little viable management structure or professional culture at the most senior level,” and
  • Needed "to address untimely payment of claims, poor employee evaluation methods, gross financial mismanagement in the case of ELNY, and a complete lack of auditing."

In the context of NYLB's alleged "gross mismanagement", the National Underwriter article finds it especially offensive that Judge John Galasso granted the NYLB complete judicial immunity as part of his ELNY liquidation order with support from the Superintendent of New York State Department of Financial Services and NOLHGA.

Attorney Edward Stone filed a Notice of Appeal May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging Judge Galasso's order. Oral arguments for the appeal are scheduled for November 15, 2012.

The National Underwriter article concludes: "the final chapter has not closed on ELNY, and there still is time to fix the problem without causing so much collateral damage." It urges the New York state government and/or the insurance industry to dedicate funds to fully restore ELNY and its shortfall victims.

For related S2KM reporting, see the structured settlement wiki and, more specifically:

• New York Liquidation Bureau
• ELNY Liquidation Order
• Elephant in the ELNY Court Room 
• ELNY Appeal - Objectors' Brief
• The ELNY Due Process Issue
• The ELNY Immunity Issue

ELNY Appeal - Injunction 2

Eighteen Executive Life of New York (ELNY) structured settlement shortfall payees (shortfall payees), as Objectors and Appellants, have challenged the Order of Liquidation and Approval of the ELNY Restructuring Agreement approved by Judge John M. Galasso on April 16, 2012 by filing an appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department,

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees' preliminary appellate brief:
  
  • Due process allegations (ELNY Appeal - Due Process 1)
  • Arguments against the judicial immunity granted to the Superintendent of the New York State Department of Financial Services (Superintendent), (ELNY Appeal - Immunity 1)
  • Arguments against the judicial injunctive protection granted to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue);
• Featured analysis of the ELNY Immunity Issue by New York attorney Peter Bickford.
• Summarized arguments in appellate briefs filed by the Superintendent and NOLHGA, as a non-party respondent, as well as the reply brief filed by the ELNY shortfall payees:
  • ELNY Appeal - Due Process 2
  • ELNY Appeal - Immunity 2.

This S2KM blog post summarizes the injunction arguments in the Superintendent's brief and the ELNY shortfall payees' reply brief. NOLHGA's appellate brief was limited to due process issues.

Superintendent

• The Supreme Court properly granted and continued its prior injunctions prohibiting lawsuits against the Superintendent.
• The Supreme Court had jurisdiction to continue and to grant the injunctions.
• New York Insurance Law Section 7419(b) grants trial courts broad discretion to issue anti-suit injunctions during liquidation and rehabilitation proceedings.
• Section 7419(b) does not preclude courts from enjoining claims seeking to hold the Superintendent personally liable for malfeasance or breach of fiduciary duty.
• The ELNY shortfall payees' challenge to the injunctions was not properly preserved in the Supreme Court.
• The injunctions protecting the Superintendent and his agents were first issued in 1991 as part of the ELNY rehabilitation order.
• The ELNY shortfall payees failed to appeal the 1991 and 1992 ELNY orders containing the injunction against the Superintendent and his agents.
• Because those injunctions are final and non-appealable, the shortfall payees are precluded from seeking to overturn those injunctions now.
• The proper avenue for ELNY shortfall payees to challenge the scope of the injunctions is to file a motion to modify with the Supreme Court.
• The shortfall payees never objected to the scope of the injunctions during the ELNY liquidation hearing nor demonstrated that the interests of justice required modification.
• Because the shortfall payees did not seek modification below, their attempt to raise this issue for the first time on appeal is not appropriate.
• The Supreme Court did not abuse its discretion by issuing and continuing its prior injunctions.
• The shortfall payees' assertions are based upon the false premise that the Superintendent and his agents were acting in their individual capacities in the ELNY rehabilitation.
• The ELNY shortfall payees are now asking the Appellate Court to allow ELNY policyholders and creditors to file lawsuits against the Superintendent outside of the receivership court and process.
• This request by the ELNY shortfall payees is directly contrary to the public interest in the single management of a liquidation that New York insurance law is intended to protect.

ELNY Shortfall Payees

• The Supreme Court lacked jurisdiction and statutory authority to permanently enjoin claims against the Superintendent in his personal capacity.
• Without addressing common law, the Superintendent's sole argument supporting subject matter jurisdiction is that New York Insurance Law authorizes the injunction.
• The ELNY shortfall payees agree that, if Section 7419 does authorize an injunction against personal-capacity claims, then the Supreme Court possessed subject matter jurisdiction.
• As a threshold issue, however, the Superintendent argues that the standard for reviewing the injunction order should be "abuse of discretion". That is incorrect.
• The dispositive issue on appeal is statutory interpretation. Can the words "prevents interference with the superintendent" authorize the injunction of claims against the Superintendent in his personal capacity?
• The Supreme Court's exercise of discretion becomes an issue only if the New York statute authorizes such an injunction.
• Section 7419 of the New York Insurance Law does not authorize permanent injunctions against personal-capacity claims.
• The Superintendent claims the statutory reference to injunctions as "the court deems necessary to prevent interference with the superintendent or the proceeding" insulates the Superintendent from liability for his own personal conduct.
• This interpretation is inconsistent with the Insurance Law and requires the Appellate Court to read the words "interferance with the superintendent" in isolation, ignoring all other words in Article 74.
• None of the cases cited by the Superintendent support the proposition that Section 7419 authorizes an injunction against personal-capacity claims - as opposed to official-capacity claims.
• The words and the distinction are taken directly from multiple New York appellate cases, and they are dispositive.
• Even if Article 74 authorized an injunction, it would be an abuse of discretion for Judge Galasso to use that authority to ban claims for which the Superintendent is not immune.
• Because New York law limits the immunity granted to private receivers, it is an abuse of discretion to grant unrestricted immunity in the guise of a blanket injunction.
• The Superintendent's claim that the ELNY shortfall payees are seeking an "unfettered right for all policy holders and creditors of ELNY to commence actions against the [Superintendent] outside of the receivership court" is incorrect.
• The ELNY shortfall payees merely ask that the scope of the injunction be consistent with New York law.
• The shortfall payees could not have appealed the original 1991 ELNY rehabilitation order. They lacked standing because they had not incurred any loss of benefits in 1991.
• Their basis for seeking appellate relief only occurred once Judge Galasso entered the ELNY liquidation order and injunction causing their loss of property.

For S2KM's complete and continuing ELNY reporting, plus copies of the shortfall payees' appellate briefs and an Executive Life timeline, see the structured settlement wiki.

ELNY Appeal - Immunity 2

Eighteen Executive Life of New York (ELNY) structured settlement shortfall payees (shortfall payees), as Objectors and Appellants, have challenged the Order of Liquidation and Approval of the ELNY Restructuring Agreement approved by Judge John M. Galasso on April 16, 2012 by filing an appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department,

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees':
  • Due process allegations (ELNY Appeal - Due Process 1);
  • Arguments against granting judicial immunity to the Superintendent of the New York State Department of Financial Services, as ELNY Receiver and Respondent, (Superintendent) (ELNY Appeal - Immunity 1)
  • Arguments against granting judicial injunctive protection to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue);
• Featured analysis about the ELNY Immunity Issue by New York attorney Peter Bickford.
• Summarized due process arguments in the appellate briefs filed by the Superintendent and NOLHGA, as a non-party respondent, as well as the due process responses in the reply brief filed by the ELNY shortfall payees. (ELNY Appeal - Due Process 2)

This S2KM blog post summarizes the immunity arguments in the Superintendent's brief and the ELNY shortfall payees' reply brief. NOLHGA's appellate brief was limited to due process issues.

Superintendent

• Judge Galasso's order properly recognized that receivers, like the Superintendent, have judicial immunity for actions undertaken pursuant to court orders and statutory duties.
• Doing so is consistent with the judicial immunity that attached in the 1992 ELNY Rehabilitation Plan Order and with various Court of Appeals’ decisions and common law holding that judicial immunity protects court-appointed receivers from personal liability when they act pursuant to the court’s charge.
• The Supreme Court has subject matter jurisdiction to determine whether actions by the Superintendent, as ELNY Receiver, fall within the scope of judicial immunity.
• The objecting ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context.
• An action against a former receiver may not be maintained unless the order of discharge is vacated and leave to prosecute an action is granted.
• Article 74 proceedings are exclusive in their operation and furnish a complete procedure for protecting the rights of all interested parties.
• The Supreme Court recognized in 1992 that the Superintendent, as ELNY's Receiver, and those working on his behalf were “discharged from any liability for their acts ... in the performance of their duties incident to the rehabilitation of ELNY”.
• Judge Galasso's recognition that the Superintendent has judicial immunity for actions he took as court-appointed ELNY Receiver is uncontroversial.
• Any attack by ELNY shortfall payees on the judicial immunity should be rejected as moot because their counsel conceded during the ELNY liquidation hearing that "any claims that my clients might have had against anyone have gone stale due to the passage of time.”
• Although the shortfall payees suggest the Superintendent should be personally liable for “overcompensating himself and his agents” or “investing ELNY assets in risky ventures” the Supreme Court earlier reviewed and approved the investment strategies contained in the ELNY Rehabilitation Plan Order.
• Efforts by the ELNY shortfall payees to insert a “care and prudence” requirement into the immunity recognized by the Supreme Court would be inconsistent with the recognition that receivers are immunized even for negligence.
• To fall outside judicial immunity, the Superintendent’s conduct would need to constitute ultra vires acts such as fraud or self-dealing actions.
• The notion that “waste” necessarily is ultra vires is unsupportable.
• The ELNY shortfall payees' argument that immunity is improper rests on false premises, namely that it somehow shields the Superintendent from personal liability for ultra vires actions that have nothing to do with ELNY’s rehabilitation, including whether he acted with bad faith for his own pecuniary interest.
• The ELNY shortfall payees' admission that the Superintendent is “entitled to assert immunity for conduct related to [his]receivership duties” demonstrates that their challenge to judicial immunity is not ripe because claims have not yet been filed against the Superintendent.
• Because any liability resulting from the Superintendent's official conduct is charged to the property of the ELNY estate, there is no property against which to seek relief once the property is transferred from the ELNY estate and the Superintendent could be inundated by lawsuits absent immunity.

ELNY Shortfall Payees

• The Supreme Court would possess subject matter jurisdiction to address claims against the Superintendent in his official capacity as ELNY Receiver.
• That is not true, however, of claims against the Superintendent "in his own shoes" and "against his own assets".
• By statute, the Superintendent's personal assets are not before the Supreme Court in rehabilitation and/or liquidation proceedings under New York Insurance Law Section 7404.
• This distinction is both critical and dispositive of the jurisdiction issue before the Court of Appeals.
• The Superintendent's appellate brief fails to acknowledge this basic distinction between official-capacity and personal-capacity claims.
• The Superintendent points out the ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context. That is correct. Neither does the Superintendent.
• The issue, therefore, appears to be one of first impression. In this case, however, determining whether a statute limits jurisdiction requires only a reading of the statute.
• One requirement for subject matter jurisdiction is the existence of a "justiciable" issue.
• The Superintendent argues the ELNY shortfall payees' challenge to judicial immunity is "not ripe" because claims have not yet been filed against the Superintendent.
• Assuming the Superintendent is correct that the shortfall payees' challenge is "not ripe", then there was no justiciable issue in the lower court either.
• As worded, the immunity provision in Judge Galasso's order exceeds the scope of immunity afforded to private court-appointed receivers.
• The Superintendent does not dispute that his status and role, as a receiver, are no different than any other court-appointed private receiver. (citing Matter of Dinallo v. DiNapoli)
• Having gone to considerable effort to secure that ruling in the Dinallo case for his benefit (avoiding audits by the State comptroller), the Superintendent must accept the consequences in the ELNY case.
• In other words, his status and role are no different than any other court-appointed private receiver.
• The only immunity issue for the Appellate Court to decide, therefore, is narrow: what is the immunity to which private receivers are entitled in New York?
• To the extent the wording of Judge Galasso's ELNY liquidation order exceeds that scope, it is erroneous.
• Where the objecting ELNY shortfall payees and the Superintendent disagree on the immunity issue is the "scope of that immunity"
• The correct standard is: "As a general rule, a receiver who acts in good faith and with appropriate care and prudence is immune from personal liability for losses."
• The Superintendent's brief ignores this settled rule and argues instead that he is automatically immune for all actions as ELNY Receiver unless the shortfall payees show his actions were "ultra vires" or in bad faith.
• Lacking authority for this proposition, the Superintendent suggests the ELNY shortfall payees "concede" it. They do not.
• Having unilaterally deemed himself immune from all but undefined "ultra vires" acts, the Superintendent then asks the Appellate Court to rule that any "waste" by the Superintendent of ELNY's assets would not be "ultra vires".
• The Superintendent, however, does not dispute that the ELNY 1992 Rehabilitation Order prohibited waste by anyone, including the Superintendent, as ELNY Receiver.
• The objecting ELNY payees recognize that acting pursuant to specific court authorization is a legitimate defense for the Superintendent.
• During the 20 plus year ELNY rehabilitation, however, the Superintendent chose not to seek court approval for most of his actions.
• Although the Superintendent argues that the 1992 ELNY Rehabilitation Order contained immunity language similar to what Judge Galasso approved, the presence of such language in an interim order does not make such language any more correct in a final order.
• The Superintendent also argues that judicial immunity should be available after the ELNY liquidation concludes and there is no property in the ELNY estate from which to seek relief.
• The ELNY shortfall payees agree. In personal capacity claims, however, no relief would be sought from the ELNY estate. Nor would such claims be chargeable against the ELNY estate.
• The Superintendent's arguments concerning the merits of potential claims against the Superintendent are baseless and not before the court.
• Whether such claims would ultimately prove baseless is for another day and another court.
• The Superintendent also argues that all unspecified future claims against the Superintendent are time-barred because counsel for some of the objecting ELNY shortfall payees stated during the ELNY liquidation hearing: "any claims my clients might have had against anyone have gone state due to the passage of time."
• That argument is incorrect. Counsel was referring to potential claims against third parties such as persons who recommended the purchase of an ELNY annuity.
• With respect to the Superintendent, the statute of limitations might not yet be running because no final order has been finalized triggering benefit cuts.

For S2KM's complete and continuing ELNY reporting, plus copies of the shortfall payees' appellate briefs and an Executive Life timeline, see the structured settlement wiki.

ELNY Appeal - Due Process 2

Eighteen Executive Life of New York (ELNY) structured settlement shortfall payees (shortfall payees), as Objectors and Appellants, have challenged the Order of Liquidation and Approval of the ELNY Restructuring Agreement, approved by Judge John M. Galasso on April 16, 2012, by filing an appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department,

Status of Appeal:

• The ELNY shortfall payees served and filed their brief and the record on appeal on Friday, August 17, 2012. For S2KM's summary, see: ELNY Appeal - Objectors' Brief.
• The Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY Receiver and Respondent, served and filed his brief on Friday, September 7, 2012.
• The National Association of Life and Health Guaranty Associations (NOLHGA), as a non-party respondent, also served and filed a supporting brief on September 7, 2012.
• The ELNY shortfall payees served and filed a reply brief on Friday September 14, 2012.
• The Appellate Court is expected to schedule oral argument "as soon as practicable".

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees':
  • Due process allegations (ELNY Appeal - Due Process 1)
  • Arguments against granting judicial immunity to the Superintendent (ELNY Appeal - Immunity 1)
  • Arguments against granting judicial injunctive protection to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue)
• Reported on the ELNY Immunity Issue featuring analysis by New York attorney Peter Bickford.

This blog post summarizes the due process arguments presented in the appellate briefs filed by the Superintendent and NOLHGA as well as the due process responses included in the reply brief filed by the ELNY shortfall payees. A subsequent S2KM blog post will summarize and compare the immunity and injunction arguments.

Superintendent

• The Court-ordered notice for the ELNY liquidation hearing satisfied due process requirements.
• Not only was the notice constitutionally adequate, it far exceeded the notice usually provided in insurer liquidation cases.
• A longer notice period would not have had any relevant impact upon the Court’s approval of the liquidation and restructuring plan.
• The Court properly exercised its broad discretion in:
  • Denying objecting shortfall payees' motion to compel discovery.
  • Sealing objections containing personal information.
  • Denying the shortfall payees' mid-hearing request to call newly disclosed witnesses.
• Conclusions - the Court:
  • Correctly held that the notice provided complied with the insurance law and due process.
  • Properly exercised its discretion in ruling on discovery and case management issues.

ELNY Shortfall Payees' Response

• The notice was inadequate in numerous respects. For examples:
  • The Court required payees to disclose all of their supporting documentation without discovery requests. Until the hearing, the payees had no reason to suspect that this obligation would be one-sided.
  • The Court-approved notice did not tell the payees that they would be required to file formal discovery requests or how to do so.
  • Although the Superintendent says he sent notices to the last known address in "ELNY's" records, the Superintendent had been managing ELNY for 20 years. The records, therefore, were his records and he had responsibility for keeping the addresses current.
• The lack of fair process prejudiced the payees.
  • The Superintendent's brief does not refute most of the payees' facts on this issue.
  • The Superintendent argues that any constitutional deprivation did not prejudice the payees.
  • However, an undisputed inability to challenge an opponent's evidence, resulting in a one-sided presentation, is patently prejudicial.
  • The inability to obtain assistance from an expert on complicated issues to permit a meaningful defense is prejudicial.
  • Findings based upon improperly one-sided evidence are inherently defective.
  • The Superintendent's "no prejudice" argument ignores the very purpose of due process - to allow people a true day in court.
  • Due process does not require ELNY shortfall payees to prove in advance that they would have procured a different outcome if they had been granted a fair hearing.

NOLHGA

• NOLHGA submitted its brief on appeal "to address a core, foundational error in Appellants’ argument": their "subtle but pervasive claim" that NOLHGA's early involvement in developing the ELNY restructuring plan denied the ELNY shortfall payees their due process rights because the shortfall payees were not afforded an equivalent role.
• The insurance laws of New York and other states grant state guaranty funds, operating through NOLHGA, a central and special role in life insurer insolvency proceedings.
• The state guaranty associations had no "conflict of interest" that implicated the due process rights of the objecting ELNY shortfall payees.
• Because the New York Superintendent serves as the statutorily mandated receiver “to protect the interests of policyholders in the liquidation proceeding", there generally is no need for policyholders to speak on their own behalf as a matter of due process.
• Therefore, the pre-liquidation consultations between the Superintendent and the state guaranty associations does not evidence any denial of due process rights for the ELNY shortfall payees.

ELNY Shortfall Payees' Response

• Most significantly, NOLHGA's arguments do not address issues on appeal.
• With respect to insurance industry involvement, the ELNY shortfall payees' chief complaint is one of fairness. While excluding ELNY policyholders, the Court permitted NOLHGA and others access, notice, disclosure and participation. No one has argued otherwise.
• Concerning conflicts of interest, NOLHGA objects to this statement by the ELNY shortfall payees: "[t]he [guaranty] associations' interest was in limiting their contributions, and the payees' interest was in maximizing them."
• In support of their statement, the objecting ELNY shortfall payees cite former New York Superintendent Michael Corcoran who stated the following in 2002 when he testified before Congress about ELNY: "The whole thrust [of state guaranty funds] is to try to pay as little as possible".

For S2KM's complete and continuing ELNY reporting, and copies of the shortfall payees' appellate briefs, see the structured settlement wiki.

ELNY Facilitation Plan

The New York Liquidation Bureau (NYLB) website for Executive Life of New York (ELNY) has announced an ELNY Facilitation Plan to assist owners of ELNY structured settlement annuities (SSAs) make supplemental payments to ELNY SSA payees and to coordinate those payments with the ELNY benefit payments scheduled to be made by the Guaranty Association Benefits Company (GABC) under the ELNY Restructuring Plan approved by Judge John Galasso on April 16, 2012 as part of the ELNY Liquidation Order.

The ELNY Liquidation Order is currently being appealed by 18 structured settlement shortfall payees who allege due process violations and improper granting of immunities and injunctions to protect the Superintendent of New York's Department of Financial Services, and his agents, acting as ELNY's Receiver. For more detailed S2KM reporting about the ELNY appeal, see the structured settlement wiki.

Key Elements of the ELNY Facilitation Plan

• Optional agreement between GABC and each ELNY SSA owner that chooses to become party to it.
• Ancillary to the Restructuring Plan and, therefore, does not need to be executed in order for the Restructuring Plan to close.
• GABC has contracted with third-party administrator Alliance-One Services, Inc. to make benefit payments to SSA payees on behalf of GABC.
• Participating ELNY SSA owners will have the option to direct supplemental payments to their SSA payees through Alliance-One Services.
• If SSA Owners exercise this option, they will be responsible to provide funds to Alliance-One Services who will then make payments to the appropriate SSA payees.
• Neither GABC nor Alliance-One Services will be responsible for funding any SSA owner payments.
• If SSA Contract owners prefer to make other arrangements to pay SSA payees, they are not required to participate in the Facilitation Plan.
• Drafted and negotiated by representatives of GABC and a group of ELNY SSA owners, the Facilitation Plan is not subject to negotiation by individual ELNY SSA owners.

For a summary of the Facilitation Plan as well as the Facilitation Plan itself, see the NYLB's ELNY website.