The ELNY Due Process Issue

Assuming presiding Judge John M. Galasso signs the Order of Liquidation and Approval of a Restructuring Agreement for Executive Life of New York (ELNY) as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver, a critical issue arises:

Will the ELNY structured settlement shortfall payees have been afforded "due process" before being deprived of a percentage of their payment rights?

The Fifth and Fourteenth Amendments to the United States Constitution provide in part:

• Fifth Amendment - "No person shall be ... deprived of life, liberty, or property, without due process of law;"
• Fourteenth Amendment Section 1 - "No State shall ... deprive any person of life, liberty, or property, without due process of law."

The United States Supreme Court has interpreted these clauses as creating two doctrines: substantive due process and procedural due process.

Substantive Due Process

Substantive due process addresses whether the government has an adequate reason for taking away a person's life, liberty or property. The most obvious, and presumably adequate, reason why the ELNY liquidation hearing could result in some persons (shortfall payees) being deprived of property (percentage of their annuity payments) is that ELNY is insolvent.

ELNY does not have sufficient assets to meet all of its future payment liabilities. Because of variations in state guaranty association laws (primarily coverage caps) as well as individual ELNY contracts (size of annuities), approximately 15 percent of ELNY's annuity payees (mostly structured settlement payees) anticipate shortfalls while the other 85 percent expect to receive 100 percent of their promised future payments from ELNY's successor company, Guaranty Association Benefits Company (GABC).

Alternative Legal Recourse

Some of the structured settlement shortfall payees should have recourse against defendants and/or liability insurers who funded their structured settlement using a "buy and hold" methodology. Other structured settlement payees, whose structured settlements were funded with qualified assignments, likely would not have similar secondary payment options because First Executive Corporation (FEC), the purchaser and owner of their annuities, declared bankruptcy in 1991 and no longer exists. For an explanation of the difference between "buy and hold" funding and qualified assignments, see this prior S2KM blog post.

Although ELNY shortfall victims (including both policyholders and payees) might have a legal claim against the Superintendent, as Receiver, and his agents, including the New York Liquidation Bureau (NYLB), the Superientent's proposed Liquidation Order includes an immunity clause intended to protect the Superintendent and his agents from any legal claims that they mismanaged the ELNY Rehabilitation and are responsible for ELNY's insolvency. For additional information about the ELNY immunity issue, see this prior S2KM blog post.

Procedural Due Process

Procedural due process addresses whether the government has followed adequate procedures in taking away a person's life, liberty or property. A denial of procedural due process occurs only when there is a denial of life, liberty or property without adequate procedures. For many ELNY structured settlement payees, the probable result of the ELNY Liquidation Order and Restructuring Agreement will be to deny them of a portion of their future structured settlement payment rights. The key question for purposes of procedural due process is whether the procedures that could result in this loss of property have been "adequate".

Structured settlement payees who anticipate shortfalls and their attorneys have argued "no" - the procedures have not been adequate and therefore they anticipate suffering an unconstitutional taking of their property because of:

• Inadequate notice - ELNY's financial records indicate ELNY became insolvent as early as 2002. Former New York Governor Eliot Spitzer held a press conference in 2007 announcing "an agreement in principle" that all future ELNY payments would be paid in full and on time. The NYLB mailed letters to individual ELNY annuity payees on December 7, 2011: 1)  notifying them about the proposed ELNY Liquidation and Restructuring Agreement; and 2) alerting them of anticipated shortfalls for specific ELNY annuity contracts and a January 16, 2012 deadline for filing written objections. Responding to objections of inadequate notice, the Superintendent has argued the ELNY notice and briefing schedule balanced the need for a prompt resolution of ELNY’s deepening insolvency against the ability of affected parties to review and object to the proposed liquidation and Restructuring Agreement.
• Denial of information - ELNY shortfall victims and their attorneys claim they have received inadequate information to properly evaluate the proposed Restructuring Agreement in order to propose possible improvements and/or alternatives. The Superintendent's response: this objection does not constitute grounds for rejecting the Restructuring Agreement because the information sought has been provided or is premature and unnecessary for the Court’s consideration and approval of the Restructuring Agreement. The Superintendent further points out the objectors have not offered a competing plan. During the ELNY hearing, Judge John Galasso denied a motion by attorneys for the structured settlement shortfall victims to gain access to source materials utilized by Jack Gibson, the Superintendent's expert, who testified: 1) GABC is "financially viable"; 2) the Superintendent's proposed plan was "the best plan"; and 3) all ELNY shortfall victims will be better off under the proposed Restructuring Agreement than under a straight liquidation.
• Denial of witnesses - Judge Galasso refused to allow attorneys for ELNY shortfall payees to introduce several expert witnesses stating "they wouldn't help". Among the witnesses not permitted to testify:
  • A former Chief Executive Officer of ELNY.
  • Two expert actuaries.
  • Two forensic accountants one of whom is also an insurance fraud investigator.

In an article published in the Touro Law Review (Vol 16 page 871), titled "Procedural Due Process Claims", constitutional legal expert Erwin Chemerinsky highlights the following three-part balancing test the United States Supreme Court articulated in Mathews v. Eldridge (1976) to determine whether an individual has been denied procedural due process:

• The more important the interest to the individual, the more procedural protections the reviewing court is going to require.
• The reviewing court must balance the ability of additional procedures to increase the accuracy of the fact finding; how likely is it that the additional procedures will reduce the risk of erroneous deprivation?
• Whether the government's interest in administrative efficiency is such that the more expensive the procedures would be, the less likely it would be that the reviewing court would require them.

For S2KM's complete reporting about the ELNY Liquidation Hearing, see the structured settlement wiki.

Comments

[Elny Victim]

Email [email protected] to join our group. We have been communicating and strategizing with one another. Strength In Numbers! We can not and will not allow this injustice to happen. Our financial futures are in our own hands.

[New York Apartments]

I believe the time has come to blitz the media with this story. Below are several links and email addresses. If anyone has others to add, please feel free to do so. And remember to keep your comments to the press, brief and to the point:

http://abcnews.go.com/Site/page?id=3068843

http://www.msnbc.msn.com/id/29104230/ns/nightly_news/t/contact-us/#.T4XhAZjK2ZY

http://www.cbsnews.com/2100-18563_162-15218.html

http://famous-relationships.topsynergy.com/Anderson_Cooper/Contact.asp
https://www.facebook.com/AC360

http://www.cnn.com/feedback/forms/form5.html?10

http://www.hannity.com/contact
https://www.facebook.com/SeanHannity

[email protected]
https://www.facebook.com/billoreillyfnc

[Sandi Rabinowitz]

My son and I are meeting with someone from our State Assembly today. We are trying to figure out our options.
We must all stick together as a group. There is strength in numbers. We'll keep you informed as to what transpires.

[Jennifer]

any new information? The waiting is ridiculous.

I am SICK of living in limbo!

Those scumbags are going to take at least 53%.

[wife]

I too have a bad feeling about the outcome...and why just us- the 15 %- why are we taking the biggest hit financially? I am willing to bet we are the ones with the most devastating injuries which resulted in the bigger settlements. But either way it is an injustice to ANYONE who was promised money , invested their futures on it and now are basically living in limbo not sure what options will be open to us! Whether big or small if you were GUARANTEED A STRUCTURED SETTLEMENT THEN YOU SHOULD GET IT and ALL OF IT not a pitance....

[Sandi Rabinowitz]

I am the mother of an ELNY shortfall victim. I accepted the annuity on my son's behalf when he was a minor. We are incensed at what is happening. Please include us in the fight.

[New York Apartments For Sale]

Hello,

I am one of the recipients of the December letter from ELNY. Due to the fact that I suffer from a sever visual handicap, I cannot read every comment. However, I want to know if anyone can tell me if the press has been notified about the status of our situation yet?

[Terri (Shortfall Victim)]

BTW here's a tidbit to help you consider joining our fight. After the Judge makes his ruling we "the shortfall victims" that have banned together will if the ruling is not in our favor, take our fight to the PRESS! ELNY and their attorneys have kept this hush-hush! WE WILL NOT! We have a very well written document put together and each one of us have a list of journalist to send this document to. This is not good for the insurance industry and we will not allow other American's to put their money/faith into an industry that is not GUARANTEED as they have told us. So please join this fight, we already have value in numbers. Email us at [email protected] WE LOOK FORWARD TO HEARING FROM YOU!

[Terri (Shortfall Victim)]

I don't know if Judge Galasso reads your blog Patrick but I sure hope he does. By the Judge taking his time to come back with a verdict doesn't fool any of us shortfall victims. We know he will more than likely come back in favor of ELNY. The most important question to me is why on earth should 15% of all of ELNY's clients take the brunt for everyone? I understand cuts are inevitable but why not make them FAIR cuts? Appoint someone to look for another structured schedule! Here it is Easter Sunday and I didn't have the peace of mind for my future to even get a little something for my grandchildren. How sad all our lives will be when this injustice is granted!
Anyone that is having their payments cut, PLEASE join our fight by emailing [email protected] WE NEED TO STAND TOGETHER and fight for what is rightfully ours already. Don't sit by and say well "I can't do anything but except this" YOU CAN!!!!
Don't let them make us a victim yet again! Enough is Enough!

Thank you Patrick for giving us a voice and for all the information you provide.

[ELNY Victim]

[email protected]. Please email me if you would like to be included in our database. We are a group of shortfall payees who are leaning on each other in this time of need. Regardless of our direction, we need as many people as possible to make a difference!

Again, thanks Patrick for your informative posts!!