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 Shortfall Payees Seek Review by NY's Highest Court

Attorneys representing Executive Life of New York (ELNY) structured settlement shortfall payees (Objectors) have filed a Motion for Leave to Appeal dated March 8, 2013 and a supporting Memorandum of Law with the New York State Court of Appeals (Court of Appeals).

This Motion, requesting review by New York's highest judicial authority, seeks to reverse a February 6, 2013 decision by the Appellate Division of the Supreme Court of the State of New York, Second Department (Second Department) which rejected an earlier legal challenge 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.

In addition to attorney Edward Stone and the Christensen & Jensen law firm, the ELNY shortfall payees' appellate legal team now includes Michael J. Hutter, Jr., a law professor at the Albany Law School of Union University. Professor Hutter's online biography states he "has argued over 275 appeals in all of New York's appellate courts and many of the cases in which he represented the prevailing party are considered to be landmark decisions."

The ELNY shortfall payees consist of approximately 1456 structured settlement payees whose benefits under the ELNY Restructuring Agreement will be reduced up to 66 percent with an average per payee present value reduction of approximately $632,310 and a total present value reduction of approximately $920,642,947.

The issues being presented to the Court of Appeals requesting their review are the same issues the Second Department rejected:

• Due Process - "Did inadequate notice and the denial of information to Objectors, 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?"

Why should the Court of Appeals grant the ELNY shortfall payees' Motion seeking leave to appeal? Their attorneys argue the distribution and protection of Article 74 assets is a matter of public importance and the Second Department decision warrants leave to appeal for the following reasons:

• The Second Department's decision to authorize immunity and enjoin suits against the Receiver in his personal capacity "undermines the public's interest in protecting policyholders and receivership assets."
• The Second Department's decision is inconsistent with the Court of Appeals' previous ruling in Dinallo v. DiNapoli, "which implicitly recognized that an Article 74 Receiver is no different than any other court appointed private Receiver."
• The immunity and injunction provisions included in the ELNY Liquidation Order "exceed the subject matter jurisdiction conferred upon the Supreme Court and is inconsistent with the provisions of Article 74."

In addition, the ELNY shortfall payees' attorneys argue the Court of Appeals should grant leave to appeal "to determine whether the limited notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, provided Objectors a fair hearing as required by the principles of due process" for two reasons:

• First, under New York law, "leave to appeal is not required to appeal constitutional issues."
• Second, even absent this express right, "the issue of whether an Article 74 proceeding, or any court proceeding, is conducted in accordance with principles of due process is a matter of public importance and concern."

For S2KM's complete reporting about the ELNY liquidation and an Executive Life timeline, see the structured settlement wiki. 

For S2KM's summary of arguments presented earlier to the Appellate Division of the Supreme Court of the State of New York, Second Department by attorneys representing Benjamin M. Lawsky,  Superintendent of the New York State Department of Financial Services, and the ELNY shortfall payees, see:

• Due process
• Immunity
• Injunction

ELNY Contempt Order Issued

New York Supreme Court Judge John M. Galasso has ordered legal counsel for three Executive Life of New York (ELNY) structured settlement shortfall payees in civil contempt for filing an ELNY class action lawsuit in the United States District Court Southern District of New York (federal court) in violation of existing ELNY anti-lawsuit injunction orders.

Despite issuing the contempt order, Judge Galasso acknowledged:

• "This Court is not empowered to dismiss the federal complaint outright"; and
• "The results of the pending [s]tate appeal may also impact the viability of the federal action."

ELNY Class Action and Appeal

Attorney Edward Stone and representatives of the Christensen & Jensen law firm, the attorneys subject to the contempt order, filed the ELNY class action lawsuit November 8, 2012 in federal court against the Superintendent and his predecessors,  in their “non-regulatory” capacities as ELNY Receivers, claiming breach of fiduciary duty and fraudulent omission among other allegations. The class action complaint also named Metropolitan Life Insurance Company and Credit Suisse Group, AG as defendants.

Attorneys for the Superintendent filed a Notice of Motion January 18, 2013 with the United States District Court to:

• Stay the ELNY class action lawsuit pursuant to the Burford abstention doctrine; or, alternatively,
• Dismiss the ELNY class action complaint in its entirety with prejudice pursuant to Federal Rule of Civil Procedure (FRCP) 12(b)(6).

Questions concerning immunity and due process, which are also raised in the pending ELNY appeal, were not subjects of the contempt proceeding. Oral arguments in the ELNY appeal have concluded and a decision is expected shortly.

Fine Imposed

Judge Galasso's January 25, 2013 contempt order also imposes a fine, payable by the ELNY shortfall payees’ legal counsel to Benjamin M. Lawsky, Superintendent of New York's Department of Financial Services (Superintendent), for costs, disbursements and reasonable attorney’s fees the Superintendent has incurred defending the federal class action and for pursuing the contempt application plus potential additional legal expenses if the Superintendent achieves a favorable result in the ELNY appeal.

The ELNY contempt order indicates Judge Galasso will determine the amount of the fine without a hearing upon receipt of an affidavit in support of the Superintendent's attorney’s fees, costs and disbursements along with a proposed judgment. For purposes of the ELNY contempt fine, the Superintendent's attorney fees will be capped at $5000.

Three Injunctions

Three ELNY injunctions were at issue in the contempt proceeding: injunctions contained in the ELNY Rehabilitation Order (1991) and the ELNY Rehabilitation Plan Approval (1992) as well as an injunction in Judge Galasso's April 16, 2012 ELNY Liquidation Order. The injunction in the Liquidation Order states:

"All persons are enjoined and restrained 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, 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."

The ELNY Liquidation Order also discharged the Superintendent, as Rehabilitator, and his agents, employees, etc., from any liability for their acts prior to the approval of the ELNY Rehabilitation Plan in the performance of their duties related to the ELNY rehabilitation. That discharge was in addition to any statutory or other immunity to which they might be entitled.

Judge Galasso's Reasoning

• The Superintendent's motion for contempt must be considered within the context of the Court enforcing its own directives.
• Counsel for plaintiffs should to be held in contempt if, by commencing the federal lawsuit against the Superintendent, an order has been disobeyed.
• New York insurance law permits a judge to issue injunctions or orders during an Article 74 rehabilitation or liquidation to prevent interference with the Receiver or the plan.
• The ELNY orders are a matter of public record, clearly expressed and unequivocal.
• The Superintendent, and his predecessors are prejudiced by being sued.
• The ELNY class action contention that no harm or waste will inure to the ELNY estate as a result of the federal action is not supported by the ELNY shortfall payees' arguments that:
  • The federal claims are against the Superintendent and his predecessors in their personal capacity; and/or
  • The federal complaint does not seek damages payable from the ELNY estate assets or prevent the ELNY Liquidation Order from proceeding as directed.
• On their face, the allegations in the federal complaint are neither "ultra vires" nor illegal.
• Naming the Superintendent and his predecessors, in their non-regulatory capacity, as defendants in the federal complaint without clearly prosecuting them in their individual capacities "appears to be a deliberate obfuscation in an effort to avoid a charge of violating the mandates of the state injunctions still in force." (emphasis added)

Additional Resources

For additional S2KM reporting about the ELNY contempt proceeding, see:

• Superintendent Seeks ELNY Contempt Order
• ELNY Payees' Attorneys Respond to Contempt Motion

For S2KM's complete and continuing ELNY reporting, 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

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 - 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 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.

ELNY Appeal - Due Process 1

In a prior blog post, S2KM summarized the appellate brief filed August 17, 2012 on behalf of 18 structured settlement shortfall payees (objector/appellants) who are appealing the Executive Life Insurance Company of New York (ELNY) liquidation plan and restructuring agreement approved by New York Supreme Court Judge John M. Galasso on April 16, 2012.

This blog post provides a more detailed summary of due process allegations contained in the objectors' appellate brief. For additional related background information, see also "The ELNY Due Process Issue".

Due process, according to authorities cited in the objectors' appellate brief, requires:

• At a minimum, notice and an opportunity to be heard before a person is deprived of a property interest; and
• Balancing (1) the interests of the parties to the dispute; (2) the adequacy of the contested procedures to protect those interests; and (3) the government’s stake in the outcome.

The objecting ELNY shortfall payees allege they were denied due process because the procedures afforded the ELNY shortfall payees were unfair and prejudicial. More specifically they allege:

• The notices sent to the ELNY shortfall payees were inadequate and misleading.
  • Although the ELNY shortfall victims had a substantial interest in the ELNY liquidation hearing, they were not parties to the proceeding. They were never served with any petitions, orders, or filings.
  • Instead, Supreme Court Judge John M. Galasso permitted the New York Superintendent of Financial Services (Superintendent), as Receiver (Receiver), to send a single letter of notification.
    • The letters were sent from a Minnesota address and had an outward appearance of junk mail.
    • Hundreds of notices were returned undelivered presumably because the Receiver's records were outdated.
    • Many ELNY shortfall payees received their notices during the December holidays.
    • The notice was difficult for non-lawyers to understand and many shortfall payees experienced difficulty finding qualified legal counsel on such short notice.
  • The notice was misleading because it reassured shortfall victims that a $100 million ELNY hardship fund had been created without fully disclosing limitations related to the hardship fund.
  • The objectors were not given adequate time to object to the proposed ELNY liquidation plan ("three weeks for some recipients").
  • The notice stated ELNY shortfall payees waived their right to object after a January 16, 2012 deadline and therefore served to dissuade potential objectors who concluded they could not comply within the deadline.
  • Having imposed these court-endorsed impediments to the objection process, however, the Superintendent, as ELNY's Receiver, subsequently cited the low number of objections received (130 objections out of 1,456 affected shortfall payees) as evidence that the proposed ELNY liquidation and restructuring plan was fair.
• The time allowed for ELNY shortfall payees to prepare for the ELNY liquidation hearing, and their lack of access to information, were unreasonable.
  • S2KM Note: for perspective, here are excerpts from the Executive Life timeline available on the structured settlement wiki:
    • 1991 - ELNY enters rehabilitation and its plan for rehabilitation is subsequently court approved in 1992. Neither the 1991 ELNY rehabilitation order nor the 1992 order approving the ELNY rehabilitation plan declared ELNY to be insolvent. The Superintendent and his agent, the New York Liquidation Bureau (NYLB), as ELNY's Receiver, have managed ELNY's business continuously from 1991 to the present.
    • 2002 - ELNY's unpublished and unaudited financial statements, obtained by attorney Peter Bickford as a result of Freedom of Information Law requests, show that ELNY's surplus turned into a deficit in 2002.
    • 2007 - New York Governor Eliot Spitzer announces an "agreement in principle" for ELNY designed to continue paying all ELNY annuitants 100% of their benefits. The announced plan, however, whereby various insurers and guarantee associations agree to pay $650 to $750 million to fund approximately $2 billion of future ELNY payments, never materializes.
    • 2009 - Audited financial statements indicate ELNY has a deficit in excess of $1.5 billion. The National Organization of Life and Health Guaranty Associations (NOLHGA) estimates the majority of ELNY's guaranty association costs (e.g. 66-75%) will likely be borne by New York's two life insurance guaranty associations and that 20-30 state guaranty associations may eventually participate in a final ELNY liquidation plan.
    • 2010 - A New York State Supreme Court Judge orders the Superintendent to present the Court with a proposed order and plan of liquidation for ELNY which the Superintendent eventually files with the court on September 1, 2011.
    • December 7, 2011 - The NYLB, acting as the Superintendent's agent, mails letters to individual ELNY annuity payees notifying them for the first time about the proposed ELNY liquidation and Restructuring Agreement and alerting them of anticipated shortfalls for specific ELNY annuity contracts.
    • January 16, 2012 - deadline for ELNY liquidation Answering Papers (objections) to be served on the Superintendent in response to the petition.
    • March 15-30, 2012 - hearing before Judge Galasso of the New York State Supreme Court to consider the Superintendent's Petition for an Order of Liquidation and Approval of a Restructuring Agreement for ELNY.
  • Although the Superintendent (and his agents), as Receiver, spent years preparing for the ELNY liquidation and restructuring plan, the Superintendent provided ELNY shortfall payees with inadequate time to: 1) review and comprehend their complicated legal dilemma and proposed ELNY restructuring plan; 2) find an attorney qualified and willing to represent their interests; and 3) prepare a response.
  • Had the ELNY shortfall payees been given adequate notice (at least as early as 2010), they could have begun taking steps to protect themselves. For example: they could have: 1) sought counsel; 2) pooled resources to hire consultants; 3) exercised their rights as annuity payees; 4) made appropriate demands on the Receiver; and 5) offered a meaningful response at the Order to Show Cause hearing.
  • Despite requests and objections, the Superintendent, as Receiver, withheld material information from the shortfall payees and their attorneys. Without these documents, attorneys for the shortfall payees were not able to verify and/or effectively question the assumptions or conclusions of the Receiver’s expert.
  • Conversely, years prior to the ELNY liquidation hearing, the Superintendent not only notified NOLHGA and various insurance companies about the pending ELNY liquidation, he also shared documents with them and invited and accepted their input into the drafting of the proposed ELNY liquidation plan.
  • However, when attorneys for the shortfall payees sought to submit their own alternative liquidation and restructuring plan for comparison, both the Receiver and Judge Galasso refused their input - with the Receiver repeatedly citing the absence of an alternative plan as evidence that his plan was viable and fair.
• Judge Galasso selectively applied procedural rules to the detriment of the ELNY shortfall payees.
  • Despite objections, Judge Galasso permitted the Superintendent, as Receiver, to establish critical components of its case through hearsay and speculative testimony.
  • As one example, Judge Galasso characterized as a "gun to my head" repeated threats by attorneys representing the Superintendent, as Receiver, and NOLHGA that voluntary contributions from insurance companies for an ELNY hardship fund would "go out the door" if Judge Galasso refused to approve the Superintendent's plan. This threat, however, was completely unsupported by admissible evidence and one of the Superintendent's own witnesses admitted such predictions were speculative.
  • In addition, Judge Galasso permitted the Superintendent's attorneys to admit into evidence binders of exhibits never served on the payees as well as a revised version of the Superintendent's restructuring plan not filed until March 6, 2012, less than 10 days before the hearing and more than six weeks after the objection period had ended.
  • By comparison, Judge Galasso repeatedly denied requests by attorneys for the ELNY shortfall payees for documents which the Superintendent had shared with NOLHGA and various insurance companies and their counsel.
  • There was no justification for Judge Galasso to allow the Superintendent and his attorneys to play "hide the ball" - refusing to share documents with shortfall payees to whom the Superintendent, as Receiver, owed an affirmative duty of disclosure while sharing those same documents with other parties including NOLHGA, various insurance companies and their attorneys.

 September 7, 2012 is the deadline for the Superintendent (Respondent), as Receiver, to serve and file his appellate brief. NOLHGA has requested and is expected to file its own appellate brief. For S2KM's complete and continuing ELNY liquidation reporting, see the structured settlement wiki.

ELNY Appeal - Objectors' Brief

Approximately 1456 Executive Life Insurance Company of New York (ELNY) shortfall victims, who collectively anticipate a $920 million present value loss under the proposed ELNY liquidation plan and restructuring agreement approved by New York Supreme Court Judge John Galasso on April 16, 2012, were denied their constitutional rights to due process according to an appeal filed August 17, 2012 with the Appellate Division (Second Department) of the New York Supreme Court.

The appeal, filed by attorney Edward Stone and the Christensen & Jensen law firm on behalf of 18 of the shortfall victims (objectors), also alleges Judge Galasso erred in granting immunity and injunctive protection to the New York Superintendent of Financial Services (Superintendent) in his capacity as ELNY's receiver (Receiver).

The objectors' appellate brief requests the appellate court to reverse the ELNY liquidation order in its entirety or, in the alternative, to reverse the paragraphs granting immunity and injunctive relief to the Superintendent and his agents including the New York Liquidation Bureau (NYLB).

Due Process

The appellate brief alleges the objecting ELNY shortfall victims were denied their due process to a fair hearing because of a lack of reasonable notice and necessary information and the selective application of civil practice law and rules.

Due process, according to authorities cited in the objectors' appellate brief, requires:

• At a minimum, notice and an opportunity to be heard before a person is deprived of a property interest; and
• Balancing (1) the interests of the parties to the dispute; (2) the adequacy of the contested procedures to protect those interests; and (3) the government’s stake in the outcome.

Looking first at the interests of the parties to the dispute, the objectors maintain:

• The shortfall payees have a "substantial interest" in a fair hearing because of: 1) their anticipated shortfalls and related financial and medical hardships; 2) their concerns about the future management of their remaining ELNY assets under a viable plan; and 3) their concerns that the Superintendent, whom they allege was responsible for their ELNY shortfalls, will continue to exercise supervisory responsibilities under the proposed ELNY restructuring plan.
• When acting in their capacity as receiver, the Superintendent and the NYLB are not acting as government agencies. Their interests are limited to protecting the policyholders, creditors, and the public including the ELNY shortfall payees. Their interests in a fair hearing should be extremely high - the same as the shortfall payees. Conversely, the burden of a fair hearing on the Superintendent and the NYLB would have been minimal.
• The government also has a high interest in a fair ELNY hearing in order to protect the integrity of the statutory receivership system as well as the financial well-being of 1456 individuals some of whom could become public charges as a result of their ELNY benefit reductions.

The ELNY shortfall victims were denied due process, according to the objectors, because the procedures afforded the ELNY shortfall victims were unfair and prejudicial:

• The notices were inadequate and misleading.
• The time allowed, and the lack of access to information, were unreasonable.
• Judge Galasso selectively applied procedural rules to the detriment of the ELNY shortfall payees.

Judicial Immunity

The objectors allege Judge Galasso and the ELNY liquidation court lacked subject matter jurisdiction and otherwise erred in granting judicial immunity to the Superintendent (along with his employees, agents and attorneys), acting as ELNY's receiver, in their personal capacities because:

• The New York Supreme Court, as a liquidation court, does not have jurisdiction under Article 74 of the New York insurance statute to prospectively adjudicate claims or issue orders not involving ELNY's assets. Claims against the Superintendent, as Receiver, or others in their personal capacities are not claims against the ELNY estate.
• The scope of the ELNY Liquidation Order’s immunity provision is unsupported by and unprecedented under New York law which provides immunity for acts taken “in good faith” and "with appropriate care and prudence.” Conversely, the ELNY liquidation order confers immunity for virtually every act or omission the Superintendent has ever undertaken, whether in an official or personal capacity, or whether in bad faith or violation of a court order.

Permanent Injunctive Relief

The objectors allege Judge Galasso and the ELNY liquidation court lacked jurisdiction and otherwise erred in granting permanent injunctive relief to the Superintendent (along with his employees, agents and attorneys), acting as ELNY's receiver, in their personal capacities because:

• The injunction provision of Article 74 of New York's insurance law applies to an action against the insurer (ELNY) or the insurer's assets not to an action against the Superintendent, as ELNY receiver, in his personal capacity.
• A receiver is judicially immune from liability if he acts in good faith and with appropriate care and prudence. Therefore, the only actions effectively enjoined by Judge Galasso's liquidation order are actions where the Superintendent, as ELNY's receiver, breached his fiduciary or other duties.
• The Superintendent did not offer any evidence that his property rights would be irreparably harmed absent the injunction.

Briefing Schedule and Additional ELNY Reporting

As reported in S2KM's recent ELNY Update, the Superintendent, as ELNY Receiver and Respondent, and attorney Stone, on behalf of Appellant/Objectors, have jointly agreed and requested calendar preference and an accelerated briefing schedule for this Appeal:

• September 7, 2012 - deadline for Respondent's brief to be served and filed.
• September 14, 2012 - deadline for Appellants' reply brief, if any, to be served and filed, with oral argument to be set by the Court as soon as practicable thereafter.

For additional background information about issues addressed in the objectors' appellate brief, see:

• The ELNY Due Process Issue; and
• The ELNY Immunity Issue - featuring Peter Bickford's analysis.

For S2KM's complete reporting about the ELNY liquidation, including a copy of the objectors/petitioners' appellate brief, see the structured settlement wiki.

Mixed ELNY Reactions

In an article titled "Loss for Policyholders", written by James Campbell and published April 17, 2012 in the Wall Street Journal (WSJ), Executive Life of New York (ELNY) stakeholders expressed contrasting reactions to Judge John M. Galasso's decisions to:

• Approve the ELNY Restructuring Agreement proposed by the Superintendent of the New York State Department of Financial Services (Superintendent); and
• Grant judicial immunity to the Superintendent, as ELNY's Receiver, and the New York Liquidation Bureau (NYLB) "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 ..."

Shortfall Payee

Eric Rabinowitz, a 43-year-old Manhattan man, who received an ELNY-funded structured settlement in 1983 after being blinded in his right eye during a cataract operation, told the WSJ: "They hung us out to dry and they knew for years that this thing didn't get properly protected and yet they gave us a few weeks to lawyer-up in holiday season."

Shortfall Payee Attorney

Connecticut attorney Edward Stone represents 12 payees whose combined ELNY benefits, according to the WSJ article, will be cut by $20 million under the approved plan. The article quotes Stone as saying: "Their benefits are being cut by more than 50%. One of my clients is being cut by 58%. This will mean major changes, and it may impact their ability to get medical care. One of my clients will have to file bankruptcy because the guarantees they were promised are not really guarantees at all."

According to Schedule 1.15 of the ELNY Restructuring Agreement, 1459 structured settlement payees will experience shortfalls ("uncovered amounts") as a result of ELNY's liquidation and restructuring even after state guaranty association contributions and voluntary enhancements by life insurance companies.

Stone also informed the WSJ: "the judge rejected his bid to call a number of witnesses to probe the [NYLB's] management of the company, including a former ELNY president, an actuary, a forensic accountant and a fraud expert."

Spokesman for Superintendent

David Neustadt, a spokesman for the Superintendent, disagreed with Stone's suggestion that the Superintendent and the NYLB might be guilty of mismanaging ELNY during the 20 plus years they supervised ELNY's Rehabilitation. "This is an absurd and baseless suggestion from a small-group of self-interested plaintiff's lawyers seeking to enrich themselves," Neustadt said.

Structured Settlement Industry Spokesman

Eric Vaughn, Executive Director of the National Structured Settlement Trade Association (NSSTA) "defended the structured-settlement industry, amid the failure of the ELNY rehabilitation" according to the WSJ article. Vaughn stated: "The Executive Life insolvency remains the only instance where any insurer of structured-settlement annuity has not made all payments in full and on time." In addition, according to Vaughn, "several hundred of the structured-settlement recipients might be able 'to recover shortfalls from the original insurers and other parties that have continuing responsibility under settlement agreements.'"

For S2KM's complete and continuing reporting about the ELNY liquidation, see the structured settlement wiki - and more specifically related to this blog post:

• The ELNY Due Process Issue - have anticipated shortfall victims received due process?
• The ELNY Immunity Issue - including and featuring Peter Bickford's analysis.
• ELNY Objections and Replies - summarizing arguments in the Superintendent's Reply Memorandum.