Beyond Structured Settlements

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.

Superintendent Argues for ELNY Class Action Dismissal

Attorneys for Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), filed a Notice of Motion January 18, 2013 with the United States District Court Southern District of New York 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).

The Notice of Motion also states:

• In response to a letter and phone call from Superintendent Lawsky's attorneys setting forth reasons why the class action lawsuit should be dismissed, plaintiffs' attorneys communicated they would not amend their complaint prior to the filing of the motion; and
• Court rules require plaintiffs to file opposing affidavits or memoranda by February 1, 2013 and Superintendent Lawsky to file any replies by February 8, 2013.

Background and Related Legal Actions

• New York State Supreme Court Judge John M. Galasso approved an Order of Liquidation and Restructuring Agreement for ELNY  on April 16, 2012 which were subsequently appealed by 18 ELNY structured settlement shortfall payees. Oral arguments in the appeal have been concluded and a decision is expected shortly.

• The ELNY class action, which was filed November 15, 2012, alleges mismanagement of ELNY during its 21 year rehabilitation by Superintendent Lawsky in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers, Metropolitan Life Insurance Company and Credit Suisse Group, AG as defendants.

• For S2KM's re-configuration of selected allegations from the ELNY class action complaint, see the "ELNY Allegation Timeline".

• In a related legal action, attorneys for Superintendent Lawsky have filed a separate Notice of a Motion with the Nassau County New York State Supreme Court to enjoin the ELNY structured settlement shortfall payees and their legal counsel from proceeding with their class action lawsuit and to hold the shortfall payees' legal counsel in contempt.

Supporting Legal Memorandum

In support of Superintendent Lawsky's motion to stay or dismiss the ELNY class action lawsuit, his attorneys also filed an accompanying memorandum of law (legal memorandum) plus a declaration with exhibits.

The legal memorandum filed with the Superintendent's Notice of Motion characterizes the class action complaint as:

• Seeking "to circumvent ongoing proceedings in the New York Supreme Court that are subject to New York’s comprehensive Insurance Law, and thereby make an end run around that court’s anti-suit injunctions and other rulings" and
• "[A]n attempt to obtain a preference over other ELNY creditors, which New York law prohibits and they and their counsel were unsuccessful in obtaining from the Receivership Court."

Burford Abstention Argument

Superintendent Lawsky's legal memoradum argues that a Burford abstention is warranted as "the Second Circuit repeatedly has held in suits involving the Superintendent during pending Article 74 proceedings." This case, according to the Superintendent's attorneys, satisfies four factors the Second Circuit has previously recognized in determining whether a Burford abstention is appropriate:

1. Specificity - New York Insurance Law Article 74 is specific and comprehensive and has “particularly detailed provisions concerning [insurance company] rehabilitation and liquidation.”
2. Substantial state concern - New York Insurance Law’s rehabilitation and liquidation provisions constitute “a matter of special state concern.” Continuation of the ELNY class action lawsuit "would disrupt New York’s unified administrative and judicial framework for the administration of the estates of insolvent insurance companies.”
3. Debatable construction - Continuation of the ELNY class action lawsuit would require the U.S. District Court to determine how Article 74's priority rule "requires any recovery to be apportioned." It would undoubtedly result in plaintiffs seeking "to collaterally litigate and debate issues related to Article 74 (some of which the Receivership Court already has ruled upon.)"
4. Minimal federal interests - The ELNY rehabilitation has been ongoing for a long time and presents no issues of federal law while there has been no "relative progress of the federal action."

FRCP 12(b)(6) Argument

As an alternative argument, the Superintendent's legal memorandum maintains the plaintiffs' class action claims should be dismissed pursuant to FRCP 12(b)(6) "because they lack standing to assert their claims and, even if they had standing, the claims would fail for [four] additional reasons."

1. Any alleged financial harm was sustained by the ELNY estate, and thus any claim belongs to the ELNY estate and not to individual creditors of the ELNY estate.
2. Plaintiffs "fail to plead either a fraudulent omission claim with particularity or a plausible breach of fiduciary duty claim against Superintendent Lawsky." The class action complaint only mentions Superintendent Lawsky twice and neither allegation states a claim.
3. Plaintiffs Jeanice Dolan’s and Keith Vincent’s claims are time-barred and plaintiff Daniel Malin’s fiduciary duty claim is not timely.
4. The Receivership Court discharged Superintendent Lawsky from liability for the conduct plaintiffs alleged caused them harm.

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

ELNY Victims Hold Press Conference

Responding to injustices they attribute to Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York (Superintendent), in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), and his predecessors and their agents, a group of ELNY structured settlement shortfall payees and their attorneys held a press conference today at the Hotel Pennsylvania in New York City.

Added January 9, 2013: Among several news organizations that attended the press conference, the New York Daily News has now published its first ELNY article.

Added January 13, 2013: See also this ELNY article from the Courthouse News Service.

Contempt Motion

The alleged injustices include a recent Motion filed by the Superintendent's attorneys with the Nassau County New York State Supreme Court to:

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

The stated purpose of the Superintendent's motion is "to punish the accused for a contempt of court, and such punishment may consist of fine or imprisonment, or both, according to the law."

S2KM Summaries

• For the structured settlement shortfall payees' legal response to the Superintendents' contempt motion, see this prior blog post.

• For ELNY class action allegations of post-1991 ELNY mismanagement and non-disclosure set forth in the ELNY class action, see this prior blog post.

• For 2012 ELNY retrospective summary, see this prior blog post.

Press Conference Comments

In addition to the structured settlement shortfall payees, two of their attorneys, Edward Stone and Roger Christensen, spoke during the press conference.

“What is most shocking to victims", Stone stated, "is that the structured settlement funds set aside for future medical expenses and care were wasted by folks charged with protecting their interests. When New York State took over ELNY in 1991, the company was financially in the black, but decades of neglect and fiscal mismanagement by the NYLB led to this horrible scenario for victims. For the state to give these suffering victims a legal ultimatum and then sue them for asking for justice is unconscionable in my view. Billion dollar deficits are not created overnight.”

Christensen, whose law firm Christensen & Jensen has previously secured major victories against insurance companies, added: “The wasting of ELNY assets that has been perpetrated here in New York State against these victims and the legal intimidation the superintendent is now seeking to impose upon them must not be tolerated in a democratic and supposedly moral society. If we must, we will take this fight to the highest levels of our nation’s legal systems to obtain justice for nearly 1,500 ELNY victims scattered across all 50 states and three foreign nations. The superintendent is now asking us to be held in contempt for what he and his predecessors should have been doing all along, protecting these good people. They put their trust in the leadership of New York State and were betrayed.”

There are a total of 1,457 ELNY shortfall victims across all 50 states, the District of Columbia, and three countries. The largest proportion of victims hail from: California, New York, Florida, New Jersey, Texas, Pennsylvania, Ohio, Washington, Nevada, North Carolina, Michigan, Arizona, Louisiana, Maryland, Illinois, Georgia and Connecticut.

Complete ELNY Coverage

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

ELNY Payees' Attorneys Respond to Contempt Motion

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

Motion for Contempt Order

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

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

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

ELNY Class Action

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

Superintendent's Contempt Argument

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

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

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

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

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

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

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

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

ELNY Appeal

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

Continuing ELNY Coverage

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

 

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

Superintendent Seeks ELNY Contempt Order

Attorneys representing Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York (Superintendent), in his capacity as Receiver of Executive Life Insurance Company of New York (ELNY), have filed 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.

The purpose of motion, according to the notice, "is to punish the accused for a contempt of court, and such punishment may consist of fine or imprisonment, or both, according to the law."

Class Action Lawsuit

The named ELNY shortfall payees, Jeanice Dolan, Daniel A. Malin, and Keith Vincent, (objector plaintiffs) through their legal counsel, Edward S. Stone, and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. (objector legal counsel), filed the class action lawsuit November 8, 2012 naming as defendants the Superintendent in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Receiver), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

This S2KM blog post re-configures selected allegations from the class action complaint into an ELNY "allegation timeline". A copy of the class action complaint is posted on the structured settlement wiki.

ELNY Appeal

Previously, on May 30, 2012, the objector legal counsel, on behalf of 18 ELNY shortfall payees, filed a Notice of Appeal (ELNY appeal) with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging the Executive Life of New York (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 oral arguments in the ELNY appeal occurred November 15, 2012 and a decision is expected before 2012 calendar year end.

• This S2KM blog post summarizes the Appellant/Objectors' appellate allegations that no statutory or common law basis existed for Judge John Galasso's "extraordinarily broad grant of injunctive relief" to protect the Superintendent and his agents, including the New York Liquidation Bureau (NYLB).
• This S2KM blog post summarizes the injunction arguments in the Superintendent's appellate brief and the ELNY shortfall payees' reply brief.

Preemptive Correspondence

Prior to filing the December 8, 2012 Notice of Motion seeking to enforce injunctions and a contempt order, attorney Steven M. Bierman, representing the Superintendent, and objector legal counsel exchanged preemptive letters, copies of which S2KM has reviewed.

In response to attorney Bierman's threats to file a motion "to enforce the Receivership Orders and to obtain an order of contempt", the objector legal counsel replied in part:

• "[W]e view your recent letter on behalf of the Superintendent as an attempt at intimidation and as further evidence of complicity by the Superintendent in the long-standing cover-up regarding the aborted rehabilitation of ELNY and the illegal wasting of its assets. As you know such wasting was in direct violation of the Supreme Court's orders."
• "[I]f you do elect to initiate contempt proceedings, you can anticipate a cross motion raising, among other things, the Superintendent's violation of the Supreme Court's orders, which are serious and numerous."
• "[W]e are puzzled by the current position taken by Superintendent Lawsky. While it was proper to name him in the subject complaint, he is currently in a position to distance himself from the failings of his predecessors under whose watch the critical failings occurred."
• "[W]e are willing to explore with you the possibility of Superintendent Lawsky's joining with us in protecting and asserting the rights of the shortfall payees."

Legal Memorandum in Support of Motion

In support of their motion to enforce the court's injunctions and for a contempt order, attorneys for the Superintendent also filed a Memorandum of Law from which selected excerpts follow:

• "During the rehabilitation and liquidation proceedings of ELNY under Article 74 of the Insurance Law, and consistent with Insurance Law § 7419, this Court has entered various antisuit injunctions—in 1991, 1992 (which were continued by this Court’s order on December 17, 2010), and 2012—that 'enjoined and restrained [all persons] from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against [ELNY] or its assets, or the Superintendent of Insurance of the State of New York and his successors in office as Rehabilitators thereof, or their agents'.”
• "In their pending appeal, those objectors and their counsel recognized the force of these injunctions, stating that this Court 'granted the Receiver’s request to permanently enjoin the bringing of any claims against the Receiver or others, including claims in their personal capacities.' They also conceded that '[l]eave of the court must be obtained to sue a receiver in his or her representative, as opposed to individual, capacity.'”
• "Notwithstanding their admissions that the Court enjoined 'the bringing of any claims against the Receiver,' three of the objector-appellants, Jeanice Dolan, Daniel A. Malin, and Keith Vincent ..., through their counsel Edward S. Stone and Roger P. Christensen, Karra J. Porter, and Kristen C. Kiburtz of Christensen & Jensen, P.C. ..., recently filed a putative class action in the United States District Courtfor the Southern District of New York that violates this Court’s anti-suit injunctions."
• "It is literally hornbook law that '[a] violation of an injunction constitutes a contempt.'”
• "Here: (1) this Court’s anti-suit injunctions expressly enjoined actions against the Superintendent as ELNY’s Receiver, (2) the Objector Plaintiffs and Counsel unquestionably violated these injunctions by filing suit in federal district court, (3) Counsel for the Objector-Plaintiffs admittedly had knowledge of the Court’s injunctions, and (4) the Superintendent has been prejudiced because, inter alia, he has had to retain counsel, to analyze the claims, and to begin preparing a responsive pleading to the federal court complaint against him, which has distracted from his work and that of his staff in orderly liquidating ELNY."
• "Disobedience of a court order is 'sufficient to sustain a finding of civil contempt, regardless of motive, where . . . it was calculated to or actually did defeat, impair, impede, or prejudice the [other party’s] rights.'”
• "Counsel for Objector-Plaintiffs’ refusal to comply with the anti-suit injunctions has caused the Receiver to incur costs and expenses, including attorney’s fees (both in analyzing and preparing a response to the Complaint and in bringing this contempt action)."
• "Accordingly, the Court should include such costs and fees as part of a contempt order and require Counsel for Objector-Plaintiffs to pay to the Superintendent the full amount of his costs and attorney’s fees that are incurred as a result of their contempt."

For S2KM's complete ELNY reporting and an Executive Life timeline, see the 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.

 

Calling Out Governor Cuomo

Doubling down on a recent investigative article he co-authored about Executive Life of New York (ELNY) ("The Complete ELNY Saga "), Bill Coffin, Group Editor in Chief for Summit Business Media’s LifeHealthPro.com, has published a follow-up op ed article ("Governor Cuomo, I'm Calling You Out") in which he urges New York Governor Andrew Cuomo to "make this right. Fix ELNY before its payees must endure their harsh payment cuts."

In his most recent article, Coffin repeats a charge he and his co-authors made earlier: "The New York Liquidation Bureau [NYLB] .... is the cause of all this mess." For S2KM's summary of Coffin's NYLB allegations, see "NYLB Role in ELNY Disaster".

According to its Mission Statement: NYLB "acts for the Superintendent of Financial Services as the court appointed fiduciary and Receiver of impaired and insolvent insurance companies, to maximize assets and resolve liabilities, return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors."

Benjamin M. Lawsky is New York's Superintendent of Financial Services. Lawsky reports directly to Governor Cuomo and is currently a defendant in an ELNY class action lawsuit  filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm.

Coffin's earlier co-authored ELNY article suggested the New York state government or the insurance industry could (and should) clean up the "ELNY debacle". In his most recent article, Coffin charges Governor Cuomo with personal responsibility.

"The simple truth", according to Coffin: "[Governor] Cuomo could fix ELNY if he wanted to. If he thought fixing ELNY would help his chances for a Presidential run in 2016, ELNY would already be fixed..... The insurance industry in the state could simply be ordered to pay that amount."

So why, Coffin asks, has Governor Cuomo not taken action? "Is it because [Governor] Cuomo cannot stomach the notion of making the rest of the industry in the state pay for the actions of an irresponsible few? ... [If] that is the case, then there is always the possibility of paying for ELNY with other general fund monies..... [A]t the very least, [Governor] Cuomo could ensure that any and all fines levied by the Department of Financial Services (Ben Lawsky) go first to ELNY before going anywhere else."

Coffin concludes his appeal to Governor Cuomo by observing: "There is a difference between doing the easy thing and doing the right thing. Show your constituents that you know the difference, or be called out as being just as much a part of this long-running failure as everybody else who has had a chance to fix ELNY and come up short."

For S2KM's complete and continuing reporting about the ELNY liquidation, see the structured settlement wiki.

ELNY Appeal - Oral Arguments

Two Executive Life of New York (ELNY) legal actions are currently in process:

• ELNY Appeal - 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 challenging the Executive Life of New York (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.
• ELNY Class Action - Attorney Edward Stone and representatives of the Christensen & Jensen law firm filed a class action lawsuit November 8, 2012 on behalf of ELNY shortfall victims in the United States District Court Southern District of New York against defendants 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 (Superintendent/Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse).

ELNY Appeal

The appeal, filed May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors:

• Alleges Judge Galasso "erroneously denied objectors' request to reject the proposed agreement of restructuring in connection with the [ELNY] liquidation";
• Further alleges  Judge Galasso's order:
  • "[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";
  • "[C]reates impermissible sub-classes of claimants"; and
  • "[R]eflects the courts erroneous denial of objectors' requests to adjourn the hearing ... due to a lack of proper notice of such hearing."
• Seeks to compel:
  • The Superintendent, as ELNY's Rehabilitator, "to provide certain discovery necessary to, among other things, allow objectors to demonstrate why the plan should not be approved and submit a viable competing restructuring plan";
  • Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and
• Further seeks to allow the objectors "to present evidence (in the form of live testimony by certain witnesses) rebutting the receiver's experts and otherwise showing that the proposed-liquidation plan should not have been approved."

Appellate Briefs

S2KM previously summarized:

• Objectors' appellate brief
• Arguments in the objectors' preliminary brief:
  • Due process
  • Immunity
  • Injunction
• Arguments in the Superintendent's brief and the objectors' reply brief:
  • Due process
  • Immunity
  • Injunction

Oral Arguments

S2KM did not attend the ELNY oral arguments in Brooklyn, N.Y. The following reporting notes were provided to S2KM by structured settlement shortfall payees, and their attorney Edward Stone, who did attend the oral arguments and includes their opinions and observations.

The four appellate judges who heard the oral arguments appeared to understand the complexity of the issues on appeal:

• Associate Justice Mark C. Dillon
• Associate Justice Sandra L. Sgroi
• Associate Justice Cheryl E. Chambers
• Associate Justice Robert J. Miller

Each briefing attorney summarized his/her arguments then responded to questions from the judges:

• Karra J. Porter - for the ELNY shortfall payees.
• Steven M. Bierman - for the Superintendent.
• Kevin P. Griffith - for NOLHGA.

At least a dozen attorneys supporting the ELNY liquidation plan approved by Judge Galasso attended the oral arguments, many at the expense of the ELNY victims.These attorneys included several each representing the Superintendent and NOLHGA.

Appearing on behalf of the ELNY shortfall payees, attorney Porter focused her comments on lower court proceedings that denied ELNY shortfall payees their basic due process rights including the right to verify information the Superintendent and NOLHGA relied upon in formulating their restructuring plan.

Porter also addressed the scope of immunity, if any, to be accorded the Superintendent under New York law. She asked the panel to hold the Superintendent's ELNY conduct to the same standard applicable to all private receivers: good faith and appropriate care and prudence. She argued there is no basis in either New York or common law for the immunity and injunctive relief Judge Galasso granted to the Superintendent and his agents.

Appearing on behalf of the Superintendent, attorney Bierman claimed the ELNY shortfall payees had been afforded a fair hearing and noted Judge Galasso had determined the ELNY liquidation and restructuring plan were appropriate under the circumstances. Bierman insisted the Superintendent represented all of the ELNY shortfall victims and acted in their best interest.

Bierman never referenced or attempted to refute evidence that the Superintendent and his agents mismanaged the ELNY estate. Instead, he characterized as "galling" that ELNY shortfall payees would challenge the results of the ELNY liquidation hearing and added "no good deed goes unpunished".

Understandably, the ELNY shortfall victims who attended the oral arguments strongly disagree with attorney Bierman as to what is "galling" about the ELNY rehabilitation, liquidation hearing and restructuring plan. What is "galling" to ELNY shortfall victims:

• The Superintendent's claim that he acted in their best interests.
• The Superintendent's gross mismanagement of the ELNY estate.
• Judge Galasso's denial of their basic due process rights.
• Judge Galasso's grant of immunity and injunction to:
  • Protect the Superintendent and his agents from lawsuits; and
  • Prevent meaningful verification of the Superintendent's assertions.

The judges seemed disinterested in the due process arguments presented by attorney Griffith on behalf of NOLHGA, according to the ELNY shortfall payees who attended the oral arguments. The only question asked: "Wasn't it always the obligation of NOLHGA's state guarantee association members to pay their coverage amounts to the ELNY shortfall payees?"

A decision in the ELNY appeal is expected by year end 2012.

For additional notes about the ELNY oral arguments, see attorney Edward Stone's website.

ELNY Class Action Filed

Attorney Edward Stone and representatives of the Christensen & Jensen law firm have filed a class action lawsuit on behalf of Executive Life of New York (ELNY) shortfall victims in the United States District Court Southern District of New York.

The Complaint names 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.

Causes of Action vs. Rehabilitator

• Breach of Fiduciary Duties - by:
  • "violating a court order with respect to asset allocation,
  • "employing a high risk tax inefficient investment strategy that created impermissible preferences,
  • "wasting precious assets by paying [New York Liquidation Bureau] expenses that were excessive and not related to the management of the ELNY estate - much of which was outsourced,
  • "failing to audit MetLife records and reconcile data with the social security death master file and
  • "not seeking a purchaser who could and would honor ELNY's policy obligations."
• Fraudulent Omission - by "fraudulently concealing and failing to disclose material information to plaintiffs."

Causes of Action vs. MetLife

• Aiding and Abetting Breach of Fiduciary Duties - by:
  • "engaging in 'bid rigging' with the Rehabilitator in order to strip ELNY's highest-quality assets and committing related misconduct,
  • "benefiting from the deal,
  • "apparently providing inducements for the deal (e.g. a lucrative future employment opportunity for the Rehabilitator's [r]epresentative),
  • "aiding in the concealment of the misrepresentations made to obtain approval of the deal,
  • "receiving "ill-gotten gains ... equaling hundreds of millions of dollars, including profits made from the receipt of ELNY's Single Premium Deferred Annuity and traditional life insurance books of business and renewals,"
  • receiving "profits made on surrender charges to former ELNY policyholders", and
  • receiving "profits made on the investment of high-quality assets received under the deal."
• Breach of Contract / Unjust Enrichment - by:
  • receiving "unearned compensation from ELNY, at the expense of ELNY’s annuitants" and
  • failing to fulfill contractual services resulting "in the inappropriate expenditure of funds, such as the payments made on behalf of deceased individuals whose benefits terminated at death."

Causes of Action vs. Credit Suisse

• Aiding and Abetting Breach of Fiduciary Duty - by:
  • "affirmatively implementing an imprudent and unsuitable investment strategy that was incompatible with the nature of the liabilities dependent upon ELNY's assets," and
  • "actively participating in the violation of court-ordered limitations on investment activities."
• Breach of Fiduciary Duty - by failing to:
  • "consider the long-term investment needs of ELNY and the Plaintiffs;
  • "select investments suitable with such needs and to maintain an asset allocation that was consistent with that strategy;
  • "comply with court-ordered limitations or parameters regarding the investment of ELNY's assets; and
  • "act with utmost loyalty to the Plaintiffs and ELNY, and not to act in their own self-interest adversely to the Plaintiffs and ELNY."

Requested 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."

In addition, the Complaint demands a jury trial and seeks:

• The action to be certified as a class action;
• Plaintiffs to be appointed as representatives of the class;
• Counsel to be appointed counsel for the class; and
• An order to be issued providing for reasonable notice to be given members of the class.

Note: although filed by the same attorneys, this ELNY class action lawsuit is a separate cause of action from the ELNY appeal challenging the Executive Life of New York (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. Oral arguments for the ELNY appeal were heard today by the Appellate Division of the Supreme Court of the State of New York, Second Department.

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