ELNY Payees' Attorneys Respond to Contempt Motion

Should Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services, acting as Receiver for Executive Life of New York, (Superintendent) receive a "free pass" for all actions taken by Lawsky, his predecessor Superintendents and their agents during the past 21 years with respect to the Executive Life of New York (ELNY) rehabilitation and liquidation no matter how egregious and regardless of whether or not those actions were taken in good faith and/or constituted illegal conduct under Article 74 of New York's insurance law?

Motion for Contempt Order

That is the central strategic question posed by attorney Edward Stone and the Christensen & Jensen law firm (ELNY shortfall attorneys) in their Memorandum of Law responding to a Motion filed last month by attorneys representing the Superintendent with the Nassau County New York State Supreme Court to:

• Enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit filed November 8, 2012 in the United States District Court Southern District of New York;
• Hold in contempt of court the shortfall payees' legal counsel; and
• Require their payment of the related costs and attorney's fees incurred by the Superintendent.

Characterizing the Superintendent's Motion for a Contempt Order as a "SLAPP" ("strategic lawsuit against public participation"), the ELNY shortfall attorneys argue in their Memorandum of Law that the Superintendent's Motion should not be condoned and that the Superintendent "is presumably wasting estate assets to avoid a proper inquiry into malfeasance by his predecessors and agents,continuing a disturbing pattern."

ELNY Class Action

In their class action Complaint, the named ELNY shortfall payees and their attorneys assert causes of action against the Superintendent and his predecessors, in their personal capacity: 1) for breach of fiduciary duty and fraudulent concealment in not conducting the rehabilitation of ELNY in good faith; 2) for self-dealing; 3) for material misstatements; and 4) for fraudulently concealing and failing to disclose material information regarding ELNY’s financial status. See the ELNY Allegation Timeline for S2KM's re-configuration of selected allegations of malfeasance from the class action complaint.

Superintendent's Contempt Argument

In their Memoradum of Law supporting their Motion for Contempt, the Superintendent's attorneys argue:

• The ELNY class action lawsuit violates an injunction provision in the ELNY Liquidation Order signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012; and
• "It is literally hornbook law that [a] violation of an injunction constitutes a contempt.'”

The ELNY Liquidation Order injunction: “enjoins and restrains [all persons] from commencing or further prosecuting any actions at law or other proceedings against ELNY or its assets, the Receiver or the New York Liquidation Bureau [NYLB], or their present or former employees, attorneys, or agents with respect to this proceeding or the discharge of their duties under Insurance Law Article 74.”

ELNY Shortfall Payees' Argument - In their Memorandum of Law Responding to the Motion for Contempt

The ELNY class action lawsuit does not violate the ELNY Liquidation Order injunction because:

• The ELNY payees' attorneys "tailored their Complaint specifically and conservatively to avoid any claim against ELNY or its assets and any claim properly precluded by the injunction or immunity provisions of the April 16th Order of this Court, acting within its subject matter jurisdiction."
• Their Federal class action lawsuit:
  • "[I]s not an in rem suit against the ELNY estate or its assets;
  • "[D]oes not concern how ELNY was run prior to being placed into rehabilitation or seek any damages payable from estate assets;
  • "[D]oes not affect or even seek to prevent the Court’s Order of Liquidation and Restructuring Agreement from proceeding;
  • "[D]oes not seek to hold the Receiver liable for any conduct of administering the business and assets of ELNY while acting in good faith with appropriate care in compliance with the Court’s prior Order of Rehabilitation."

The Superintendent's Motion for a Contempt Order should be denied because:

• The ELNY class action lawsuit is outside the scope of the ELNY liquidation.
• The ELNY liquidation court's subject matter jurisdiction is limited to administration of the ELNY estate.
• The ELNY Liquidation Order's injunction provision cannot be broader than the scope of judicial immunity.
• The injunction provision should be interpreted and enforced consistent with the purpose and provisions of New York insurance law Article 74.
• The claims made in the ELNY class action lawsuit seek to hold the Superintendent and his agents liable in their personal capacities for bad faith conduct.
• The ELNY liquidation court should not hold the plaintiffs in the class action lawsuit or their attorneys in civil contempt.
• The injunction does not clearly and unequivocally bar suits against the Superintendent in his personal capacity.
• Positions taken by the ELNY shortfall payees in the ELNY appeal are not admissions, but rather the proper way to protect their rights.

ELNY Appeal

The ELNY Order's injunction, and its related grant of immunity, are simultaneously being contested in an ELNY appeal filed May 30, 2012 with the Appellate Division of the Supreme Court of the State of New York, Second Department. Oral arguments for the ELNY appeal occurred November 15, 2012 but no decision has been announced. This S2KM blog post summarizes the injunction arguments in the Superintendent's appellate brief and the ELNY shortfall payees' appellate reply brief.

Continuing ELNY Coverage

For S2KM's complete and continuing coverage of the ELNY liquidation and related lawsuits, see the structured settlement wiki.