Beyond Structured Settlements

ELNY Liquidation Date Announced

New York Superintendent of Financial Services Benjamin Lawsky, as Receiver for Executive Life Insurance Company of New York (ELNY), has announced the proposed liquidation date and the proposed date of closing of the ELNY Restructuring Agreement will be August 8, 2013. ELNY's shortfall payees, including hundreds of structured settlement recipients, can expect their payment reductions to take effect shortly thereafter.

ELNY first entered rehabilitation in 1991 when then New York Insurance Commissioner Salvatore Curiale obtained a Court Order seizing control of the company. The Nassau New York State Supreme Court approved a Plan of Rehabilitation for ELNY in 1992. Neither the ELNY Order of Rehabilitation in 1991 nor the ELNY Plan of Rehabilitation in 1992 determined that ELNY was insolvent.

Under the Rehabilitation Plan, owners of ELNY single premium deferred annuities (SPDA), interest sensitive life policies, whole life policies and term policies were given the option to have Metropolitan Life Insurance Company (MetLife) assume their policies. However, all of ELNY's single premium immediate annuities (including all ELNY structured settlement annuities) remained with ELNY under the supervision of the Insurance Superintendent and his agent, the New York Liquidation Bureau (NYLB). The Rehabilitation Plan named MetLife as Administrator of the ELNY single premium immediate annuities (SPIAs) and payees continued to receive their scheduled annuity payments as part of the Rehabilitation Plan.

The first public announcement that ELNY was experiencing financial problems during its Rehabilitation occurred in December of 2007 when then New York Governor Eliot Spitzer reassuringly announced an “Agreement in Principle” designed to continue paying all ELNY annuitants 100 percent of their benefits. Unfortunately, the “Agreement in Principle” never materialized.

The first audited financial statements for ELNY during its Rehabilitation were released in 2009 for years 2006 and 2007. Those financial statements showed that, as of December 31, 2007, ELNY had assets of $1,344,729,904 and liabilities of $2,538,548,125 resulting in a negative surplus of $1,193,818,221. Subsequent financial statements for years 2008-2010 indicated a deteriorating financial condition. As of December 31, 2010, ELNY had assets of $905,945,201 and liabilities of $2,474,317 resulting in a negative surplus of $1,568,372,142. 

On December 17, 2010, Nassau County New York State Supreme Court Judge John M. Galasso issued an Order to Show Cause requiring New York's Insurance Superintendent to present the Court with a proposed Order and Plan of Liquidation for ELNY on or before July 1, 2011. As justification for ELNY's proposed liquidation, the Petition, which was ultimately filed September 1, 2011, stated: “ELNY's financial condition is progressively deteriorating” and “ELNY will be unable to pay its outstanding lawful obligations as they mature in the regular course of business and further efforts to rehabilitate ELNY are futile . . . . the unprecedented global economic crisis and resulting market collapse of 2008 had a significant negative impact on ELNY's retained assets and made continued implementation of the Rehabilitation Plan without a liquidation unfeasible."

The ELNY Restructuring Plan submitted to, and approved by, Judge Galasso was jointly prepared by the Superintendent and the National Organization of Life and Health Guaranty Associations (NOLHGA). Under the Restructuring Plan, participating state life and health guaranty associations (PGAs) and certain life insurance companies have formed a new special purpose not-for-profit captive insurance company under the laws of the district of Columbia to replace ELNY once it is liquidated. The PGAs have agreed to supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. The various participating life companies have agreed to provide additional enhancements and have set up an ELNY Hardship Fund.

The Restructuring Plan includes Schedule 1.15 listing all of ELNY's current annuities, with the names of the annuity owners and payees redacted. Schedule 1.15 includes additional information such as individual contract identification numbers, the proposed "uncovered amount" (shortfall) and "total percentage of contract protected" assuming contributions from state life and health insurance guaranty associations and certain supplemental enhancements. Following the Schedule 1.15 filing, the NYLB sent informational notices to each ELNY annuity payee and published weekly notices in the New York Times and the Wall Street Journal.

Judge Galasso signed the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement on April 16, 2012 (as proposed by the Superintendent and despite objections by several structured settlement payees and their attorneys) following a two week hearing March 15-30, 2012.

The anticipated shortfalls resulting from the ELNY liquidation and restructuring were expected to total $920,641,977 on a present value basis as of April 16, 2012. This figure assumed promised state guarantee association payments and enhancements but did not include possible payments from the ELNY Hardship Fund and/or from structured settlement defendants who negotiated and promised to pay future periodic payments funded with ELNY annuities. As a result, approximately 15 percent of the ELNY annuitants are expected to experience an average present value loss of more than $600,000 per annuitant. The remaining ELNY annuitants are not expected to experience any reduction in their payments.

As part of his ELNY Liquidation Order, Judge Galasso granted judicial immunity "to the Receiver and his successors in office, the New York Liquidation Bureau, and their respective attorneys, agents and employees, ... 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 Order also enjoined 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, 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."

Subsequent ELNY-related litigation and court filings followed:

• Appeal of Liquidation Order - On March 30, 2012, attorneys representing ELNY structured settlement shortfall payees filed a Notice of Appeal challenging the ELNY Liquidation Order and Restructuring Agreement. Both the Appellate Division of the Supreme Court of the State of New York, Second Department and the New York State Court of Appeals subequently denied this Appeal.
• Motion to Clarify and/or Correct - On June 14, 2012, attorneys representing several liability insurers who previously purchased ELNY structured settlement annuities filed a Motion asking Judge Galasso to "clarify and/or correct" his ELNY Memorandum Decision insofar as it "caused confusion or mistake" concerning responsibilities of those liability insurers to make up shortfalls on ELNY annuities. Judge Galasso denied the Motion.
• Class Action Lawsuit - On November 8, 2012, attorneys representing ELNY structured settlement shortfall payees filed a class action lawsuit in the United States District Court Southern District of New York against Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers, Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants. The class action Complaint alleged  the defendants' mismanagement and misconduct had caused the plaintiffs' ELNY payment shortfalls.
• Contempt Order - On December 7, 2012, responding to the ELNY shortfall payees' class action lawsuit, Superintendent Lawsky filed a Notice of Motion seeking to enforce Judge Galasso's ELNY injunctions and to hold the ELNY shortfall payees' attorneys in contempt of Judge Galasso's ELNY Liquidation Order. On January 25, 2013, Judge Galasso issued an Order holding the ELNY shortfall payees' attorneys in contempt of court and imposing a fine for filing the class action lawsuit.
• Dismissal of Class Action - As a result Judge Galasso's Contempt Order, the ELNY shortfall payees voluntarily dismissed their class action lawsuit on February 7, 2013 without prejudice thereby preserving their right to re-file claims and tolling the statute of limitations.
• Appeal of Contempt Order - On February 14, 2013, three ELNY structured settlement shortfall payees and their attorneys filed a Notice of Appeal challenging Judge Galasso's Contempt Order. That Appeal currently remains unresolved.

For additional information about ELNY, see:

• Section 3.05[13] of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
• The structured settlement wiki.

ELNY Allegation Timeline

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

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

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

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

ELNY Class Action Allegation Timeline

April 16, 1991

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

April 23, 1991

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

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

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

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

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

Between June and November 1991

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

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

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

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

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

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

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

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

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

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

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

1999

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

2000

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

2001

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

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

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

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

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

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

Late 2005 or early 2006

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

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

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

2007

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

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

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

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

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

December 2007

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

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

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

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

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

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

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

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

December 2011 - NYLB:

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

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

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

 

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.