ELNY Appeal - Immunity 1

As earlier reported by S2KM, attorney Edward Stone filed a Notice of Appeal May 30, 2012 with the Appellate Division of the Supreme Court of the State of New York, Second Department, on behalf of 18 Executive Life of New York (ELNY) structured settlement shortfall payees, as Objectors and Appellants, challenging the Order of Liquidation and Approval of the ELNY Restructuring Agreement approved by Judge John M. Galasso on April 16, 2012.

For a copy of the ELNY liquidation order, as well as an Executive Life timeline, see the structured settlement wiki.

The Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY Receiver and Respondent, and attorney Stone, on behalf of Appellant/Objector ELNY shortfall payees, subsequently and jointly agreed to and requested calendar preference and an accelerated briefing schedule for this Appeal:

• Appellant/Objectors' brief and the record on appeal were served and filed on Friday, August 17, 2012. For S2KM's summary, see: ELNY Appeal - Objectors' Brief.
• The deadline for the Superintendent/Respondent's brief to be served and filed is Friday, September 7 ,2012.
• The deadline for the Appellant/Objectors' reply brief, if any, to be served and filed is Monday, September 14, 2012, with oral argument to be set by the Court as soon as practicable thereafter.

Conclusions of the Appellant/Objectors' Brief

• The expedited procedure of the ELNY liquidation hearing was so flawed, and the prejudice to the ELNY shortfall payees so great, as to violate constitutional principles of due process. Further, no statutory or common law basis existed for Judge Galasso's extraordinarily broad grant of immunity and injunctive relief to protect the Superintendent and his agents, including the New York Liquidation Bureau (NYLB).
• If the appellate court determines a violation of due process occurred, the ELNY shortfall payees have requested the appellate court to reverse Judge Galasso's Liquidation Order in its entirety. In the alternative, the ELNY shortfall payees have requested the appellate court to reverse specific paragraphs of the Liquidation Order granting the injunction and immunity.

 In prior blog posts, S2KM summarized the Appellant/Objectors' due process allegations (ELNY Appeal - Due Process 1) and provided additional related analysis (ELNY Due Process Issue). S2KM has also reported previously on the ELNY Immunity Issue featuring analysis by New York attorney Peter Bickford.

This blog post provides a more detailed summary of the allegations in the Appellant/Objectors appellate brief arguing that no statutory or common law basis existed for Judge Galasso's "extraordinarily broad grant of immunity" for the Superintendent and his agents. A copy of the Appellant/Objectors' brief is posted on the structured settlement wiki.

Judicial Immunity

The ELNY liquidation order signed by Judge Galasso on April 16, 2012 confirms the following grant of immunity:

"Judicial immunity is extended to the Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents and employees, and such immunity is extended to them for any cause of action of any nature against them, individually or jointly, for any action or omission by any one or more of them when acting in good faith, in accordance with this Order, or in the performance of their duties pursuant to Insurance Law Article 74 ..."

The objecting ELNY structured settlement shortfall payees allege: 1) Judge Galasso and the ELNY liquidation court lacked subject matter jurisdiction to grant judicial immunity to the Superintendent (along with his employees, agents and attorneys), acting as ELNY's Receiver, in their personal capacities; and 2) the scope of the judicial immunity provision is unsupported by and unprecedented under New York law. What follows is a summary of their arguments.

1. Subject matter jurisdiction

• Subject matter jurisdiction is “the authority of the courts to adjudicate classes of cases.”
• Subject matter jurisdiction may be limited by statute (e.g. Article 74 of the New York Insurance Law).
• A court cannot entertain actions in which it lacks subject matter jurisdiction.
• In this case, the New York Supreme Court had before it the ELNY estate – and only the ELNY estate.
• Under Article 74, subject matter jurisdiction in a liquidation proceeding is limited to the collection and disposition of the insurer’s assets.
• As a liquidation court, the New York Supreme Court does not have jurisdiction to prospectively adjudicate claims or issue orders not involving the estate’s assets.
• During the ELNY liquidation hearing, the Superintendent incorrectly suggested that all claims against him and/or against his agents, regardless of capacity, constituted claims against the estate.
• Statutory immunity granted to the Superintendent as regulator, however, does not apply to his role as receiver where he stands in the shoes of management and should be subject to the same standard of care and responsibility.
• As evidence of its own private status, the NYLB, which managed ELNY's day to day operations as the Superintendent's agent during ELNY's 20 plus years of rehabilitation, has acknowledged in prior cases that it retains errors and omissions insurance.
• Claims against the Superintendent and/or his agents acting in their personal capacities as ELNY's Receiver, therefore, are not claims against the ELNY estate.
• The Superintendent also argued that similar immunity language was included in interim orders during the rehabilitation proceeding.
• However, the same rationale upon which the judicial immunity provision is void and unauthorized by law should also invalidate similar provisions in interlocutory orders.
• Because Judge Galasso's judicial grant of immunity to the Superintendent, as ELNY's Receiver, and to his agents, in their personal capacities extends beyond ELNY's assets in liquidation, it exceeds the New York Supreme Court’s subject matter jurisdiction and should be void.

2. New York legal authority

• Judge Galasso's grant of immunity for the Superintendent and his agents is not provided for by statute, and exceeds the proper scope of immunity for a private court-appointed receiver.
• Under common law, judges are immune from liability when acting within their judicial power and authority.
• Receivers are generally considered an arm of the court and are entitled to immunity for conduct related to their receivership duties.
• Unlike a judge, however, judicial immunity applies only when a receiver acts “in good faith and with appropriate care and prudence.”
• Prior to 1909, private individuals acting as court appointed receivers managed the liquidation of impaired insurance companies in New York.
• In 1909, the New York legislature assigned the role of receiver for impaired insurance companies to the Superintendent of Insurance.
• The 1909 legislation was not intended to change the common law with respect to the Superintendent’s role as receiver.
• In prior cases, the Superintendent has successfully argued that it is not a governmental agency when acting as receiver.
• Therefore, there is no legal basis for the Superintendent, as ELNY's Receiver, to claim greater immunity than any other private court-appointed receiver.
• During the Order to Show Cause hearing, the NYLB, as agent for the Superintendent, indicated that it was seeking the same “good faith” immunity normally afforded to receivers.
• However, the NYLB submitted, and Judge Galasso signed, far broader language "purporting to confer immunity for any action taken in conducting the business of the insurer, in both official and personal capacities, regardless of whether his actions were in good faith or with appropriate care and prudence, and even regardless of whether such actions were in violation of court orders."
• The ELNY structured settlement shortfall payees have no problem with immunity for acts taken “in good faith” and "with appropriate care and prudence” or for "acts specifically authorized by a court order".
• Judge Galasso's order, however, eliminated any limitations on immunity inherent in those clauses with the final disjunctive phrase, “or in the performance of their duties pursuant to Insurance Law Article 74.”
• As ELNY's Receiver, the Superintendent's Article 74 duties are broad and general and include, among other things, “conduct[ing] the business of the insurer.”
• Granting immunity to the Superintendent for performing duties permitted by Article 74 means that literally any act or omission related to the management of ELNY or its assets is immunized, whether or not undertaken in good faith, including acts that violate a court order.
• The 1992 ELNY Rehabilitation Order expressly prohibits the wasting of ELNY’s assets by anyone, including the Superintendent, as ELNY's Receiver.
• Under the immunity provision in the ELNY liquidation order, however, the Superintendent could claim immunity for the violation of that order, because any such waste would have occurred during the performance of the Receiver’s duties under Article 74.
• Judge Galasso's immunity order sanctions a wide range of potential breaches of the Superintendent/Receiver’s fiduciary duties to the ELNY shortfall payees.
• For example, the Superintendent could claim immunity for overcompensating himself and his agents, fraudulently concealing ELNY’s financial condition, managing ELNY assets for his benefit or that of vendors, and/or incompetently investing ELNY assets in risky ventures.
• Therefore, Judge Galasso erred because the ELNY liquidation order confers immunity for virtually every act or omission the Superintendent has ever undertaken while managing ELNY, whether in an official or personal capacity, or whether in bad faith or violation of a court order.

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