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.

NY Court of Appeals Denies ELNY Review

The New York State Court of Appeals (Court of Appeals), New York's highest judicial authority, has denied a Motion for Leave to Appeal a February 6, 2013 decision bythe Appellate Division of the Supreme Court of the State of New York, Second Department which rejected a legal challenge by Executive Life of New York (ELNY) structured settlement shortfall payees to the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The appeal challenging the merits of the ELNY Liquidation Order had raised three primary issues each of which the Court of Appeals' decision effectively rejected:

• Due Process - "Did inadequate notice and the denial of information to Objectors (ELNY structured settlement shortfall payees), along with the selective application of the Civil Practice Law and Rules, deny Objectors a fair hearing as required by principles of due process?"
• Immunity - "Did the Supreme Court exceed its subject matter jurisdiction or otherwise err in granting immunity to the Receiver and others in their personal capacities, where such immunity is not provided for by statute, is inconsistent with the common law, and is unsupported by evidence?"
• Injunction - "Did the Supreme Court exceed its jurisdiction or otherwise err in permanently enjoining claims against the Receiver and others in their personal capacities, where such injunction is not provided for by statute or the common law, and no evidence was adduced at the hearing?"

The Court of Appeals decision effectively ends litigation challenging the merits of the ELNY Liquidation Order and permits the National Organization of Life and Health Insurance Guaranty Association (NOLHGA) to proceed with the ELNY Restructuring Agreement including substantial annuity payment reductions for more than 1400 structured settlement recipients.

ELNY Contempt Order and Class Action Lawsuit

Another anticipated result of the Court of Appeals decision will be the filing of a brief by legal counsel for three ELNY structured settlement shortfall payees (objector respondents) to perfect their appeal of a Contempt Order issued January 25, 2013 by Judge Galasso. Based upon previous court filings and out-of-court statements, they are expected to argue that Judge Galasso's Contempt Order violates the United States Constitution.

Following Judge Galasso's Contempt Order, attorneys representing the structured settlement shortfall payees voluntarily dismissed their federal court ELNY class action lawsuit , without prejudice, preserving their right to refile claims and tolling the statute of limitations. At that time, shortfall payee attorney Edward Stone characterized the voluntary dismissal as a "strategic decision" attributable to the Contempt Order which left open the possibility of additional fines for continued legal efforts to protect ELNY shortfall payees.

In a letter written to United States District Judge Jesse M. Furman prior to the voluntary dismissal of the ELNY class action lawsuit, shortfall payee attorney Roger Christensen quoted from the 1964 United States Supreme Court decision in Donovan v. City of Dallas: "Early in the history of our country, a general rule was established that state and federal courts would not interfere with or try to restrain each others proceedings. That rule has continued substantially unchanged to this time."

Christensen's letter continued: "It could not be more clear that a state court cannot enjoin a federal action or use contempt proceedings to preclude citizens' attempts to have their claims heard in federal court."

The original class action Complaint named Jeanice Dolan, Daniel A. Malin, Keith Vincent, and other similarly situated ELNY shortfall victims, as plaintiffs, and Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, in his non-regulatory capacity as ELNY's Receiver, including predecessor ELNY Receivers (Rehabilitator), Metropolitan Life Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse) as defendants.

Based upon allegations of defendant misconduct (see: ELNY Allegation Timeline), the original class action Complaint requested the following damages and relief:

• "Damages equaling the full present value of each Class Member's annuity issued by ELNY, less any amount determined to be owing to Plaintiff under the terms of ELNY's liquidation;
• "Damages equaling the amount of each defendant's unjust enrichment and ill-gotten gains;
• "Attorney fees and litigation expenses, to the extent permitted by contract or law;
• "Pre- and post-judgment interest, to the extent provided by contract or law; and
• "Such other equitable relief as the Court deems appropriate."

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

 

ELNY Shortfall Payees Seek Review by NY's Highest Court

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

This Motion, requesting review by New York's highest judicial authority, seeks to reverse a February 6, 2013 decision by the Appellate Division of the Supreme Court of the State of New York, Second Department (Second Department) which rejected an earlier legal challenge to the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

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

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

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

• Due Process - "Did inadequate notice and the denial of information to Objectors, along with the selective application of the Civil Practice Law and Rules, deny Objectors a fair hearing as required by principles of due process?"
• Immunity - "Did the Supreme Court exceed its subject matter jurisdiction or otherwise err in granting immunity to the Receiver and others in their personal capacities, where such immunity is not provided for by statute, is inconsistent with the common law, and is unsupported by evidence?"
• Injunction - "Did the Supreme Court exceed its jurisdiction or otherwise err in permanently enjoining claims against the Receiver and others in their personal capacities, where such injunction is not provided for by statute or the common law, and no evidence was adduced at the hearing?"

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

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

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

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

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

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

• Due process
• Immunity
• Injunction

ELNY Class Action Dismissed

Attorneys representing Executive Life of New York (ELNY) shortfall victims have voluntarily dismissed an ELNY class action lawsuit without prejudice preserving their right to refile claims and tolling the statute of limitations.

The dismissal of the ELNY class action lawsuit follows:

• Contempt Order Issued - Judge M. Galasso sanctioned attorney Edward Stone and representatives of the Christensen & Jensen law firm for civil contempt February 25, 2013 for filing the ELNY class action lawsuit in the United States District Court Southern District of New York in violation of existing ELNY anti-lawsuit injunction orders.
• Anticipated Appeal of Contempt Order - Stone and Christensen & Jensen responded January 28, 2013 with a press release announcing their plan to pursue an appeal of the contempt order with the Appellate Division of the Supreme Court of the State of New York.
• Appeal of Liquidation Order Denied - The Appellate Division of the Supreme Court of the State of New York, Second Department denied an appeal February 6, 2013 challenging the ELNY Order of Liquidation and Approval of the ELNY Restructuring Agreement signed by Judge Galasso on April 16, 2012.

Attorney Stone has informed S2KM Limited the voluntary dismissal of the ELNY class action was a "strategic decision" attributable to Judge Galasso's contempt order which left open the possibility of additional fines for continued legal efforts to protect ELNY shortfall payees. Judge Galasso's contempt order provides in relevant part:

"Should [Superintendent Benjamin M Lawsky] accrue additional legal expenses, such as in filing a motion to dismiss the federal complaint upon a successful appellate result, [Stone and Christensen & Jensen] may be subject to an additional fine."

Judge Galasso acknowledged in the contempt order: "This Court is not empowered to dismiss the federal complaint outright."

Stone and the Christensen law firm maintain that the blanket immunity and permanent injunction granted by Judge Galasso in the ELNY liquidation order go beyond what Article 74 of the New York Insurance Law allows and that Judge Galasso's contempt order violates the United States Constitution.

In a letter written to United States District Judge Jesse M. Furman prior to the voluntary dismissal of the ELNY class action lawsuit, attorney Roger Christensen quoted from the 1964 decision of the United States Supreme Court in Donovan v. City of Dallas: "Early in the history of our country, a general rule was established that state and federal courts would not interfere with or try to restrain each others proceedings. That rule has continued substantially unchanged to this time."

Christensen's letter continued: "It could not be more clear that a state court cannot enjoin a federal action or use contempt proceedings to preclude citizens' attempts to have their claims heard in federal court."

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

ELNY Contempt Order Issued

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

Despite issuing the contempt order, Judge Galasso acknowledged:

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

ELNY Class Action and Appeal

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

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

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

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

Fine Imposed

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

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

Three Injunctions

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

"All persons are enjoined and restrained from commencing or further prosecuting any actions at law or other proceedings against ELNY or its assets, the Receiver or the New York Liquidation Bureau, or their present or former employees, attorneys, or agents, with respect to this proceeding or the discharge of their duties under Insurance Law Article 74."

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

Judge Galasso's Reasoning

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

Additional Resources

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

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

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

Structured Settlements in 2012 - 4

Executive Life of New York

At one time or another, each of us may have become acquainted with individuals who have overcome personal injuries and successfully transformed their disabilities and special needs into special lifetime accomplishments. Kyle Walsh, profiled in a 2012 S2KM blog post, is one such individual. The late Randy Snow, featured in a 2008 S2KM blog series, was another.

Structured settlements are supposed to provide economic security for people with serious injuries and disabilities - to help them rebuild their lives and, in many cases, to achieve special lifetime accomplishments. Instead of an all-cash personal injury settlement, structured settlement recipients accept a promise of future periodic payments.

What happens, if and when, that promise is broken? What happens when a structured settlement funding company, and the regulators and guaranty system responsible for protecting the structured settlement recipients, fail to make and/or insure full payment?

These questions are highlighted by the Executive Life of New York (ELNY) liquidation - the dominant structured settlement story of 2012 and one of the most important developments in the history of the United States structured settlement industry.

The story of ELNY, as well as its affiliate Executive Life of California (ELIC), and their parent company, First Capital Corporation (FEC), is long and complex. For background of events prior to ELNY's 1991 receivership, S2KM recommends Gary Schulte's 1992 book "The Fall of First Executive".

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent. When then New York's Insurance Commissioner Salvatore Curiale seized control of ELNY on April 16, 1991 and placed it in receivership, he stated: "The company is currently neither in an insolvent or impaired condition. . . . I have not petitioned the Court to make a finding of insolvency. ELNY is a company well able to meet its current obligations."

Exactly twenty-one years later, on April 16, 2012, following 11 days of hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso approved an Order of Liquidation and a Restructuring Agreement for ELNY as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver, and the National Organization of Life and Health Guaranty Funds (NOLHGA).

The result of the ELNY Liquidation Order and Restructuring Plan, even following contributions from state guaranty funds and voluntary life insurance company contributions, is a $900 million shortfall allocated entirely (and arguably inequitably) to more than 1400 ELNY payees out of a total of approximately 9700 current ELNY payees. The remaining ELNY payees expect to receive 100 percent of their promised future payments. The average individual shortfall is estimated to exceed $600,000 present value. Although an ELNY Hardship Fund has been created, it has not yet been funded.

An appeal was filed May 30, 2012, on behalf of 18 ELNY structured settlement shortfall payees, challenging the ELNY liquidation order and restructuring agreement on the basis of due process. The appeal also alleges that immunities and injunctions granted under the liquidation order are improper. Oral arguments occurred on November 15, 2012 in Brooklyn before the Appellate Division of the Supreme Court of the State of New York, Second Department. No decision has been announced.

Another legal challenge to the ELNY liquidation order occurred June 14, 2012 when attorneys for several liability insurers filed a Motion asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. The motion indirectly raises the issue of whether qualified assignments extinguish the liability of defendants and/or liability insurers for shortfall payments resulting from the ELNY liquidation? Judge Galasso denied the Motion without further explanation. 

In a subsequent development, somewhat related to the liability insurers' motion, the ELNY website announced an ELNY Facilitation Plan to assist owners of ELNY structured settlement annuities (SSAs) make supplemental payments to ELNY SSA payees and to coordinate those payments with the ELNY benefit payments scheduled to be made by the Guaranty Association Benefits Company (GABC) under the ELNY Restructuring Plan approved by Judge Galasso on April 16, 2012 as part of the ELNY liquidation order.

The same attorneys who filed the ELNY appeal, Edward Stone and representatives of the Christensen & Jensen law firm, filed a class action lawsuit November 8, 2012, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York, and his predecessor ELNY Rehabilitators, as well as MetLife and Credit Suisse. The class action allegations provide a critical litany of mismanagment and non-disclosure during the 21 years ELNY's estate was being supervised by these defendants.

In response, attorneys representing Benjamin M. Lawsky, in his capacity as ELNY's Receiver, filed a Notice of a Motion with the Nassau County New York State Supreme Court requesting oral argument on January 4, 2013 at 9:30 a.m. or as soon thereafter as the parties may be heard:

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

Although the ELNY liquidation has so far received limited coverage in the mainstream media, specialty insurance experts and analysts have not been silent. Examples:

• Peter Bickford - In his article titled "The Elephant in the Court Room" (summarized here by S2KM), Bickford argues New York’s receivership system has failed ELNY, its policyholders and beneficiaries, as well as the insurance industry and its customers due to a lack of basic accountability standards. Although the ELNY restructuring plan may solve the immediate ELNY problem (at the expense of the remaining ELNY shortfall victims), Bickford maintains it does not address the broader, underlying systemic defects inherent in the New York life insurance receivership system. Without an act of the New York legislature, according to Bickford, "there will be no life insurance guaranty fund coverage in New York" following ELNY. Bickford's article also provides succinct summaries of objections raised by ELNY shortfall victims and ELNY legal issues which he states "could linger in the courts for years"
• LifeHealthPro - In an article titled "The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", (summarized here by S2KM), the authors assign primary blame for ELNY insolvency to the NYLB which they describe as "a rogue agency known for its codes of secrecy and characterized by many who spoke for this story as ineffective and mismanaged at best, and a snake pit of corruption at worst". In a companion article (reviewed here by S2KM), writer Warren Hersch asks: "is the structured settlement process in need of reform"?  In a follow-up oped article titled "Governor Cuomo I'm Calling You Out", (summarized here by S2KM), Bill Coffin, LifeHealthPro's Group Editor, charges New York Governor Andrew Cuomo with personal responsibility to clean up the "ELNY debacle".

The final results of the ELNY liquidation will depend upon the outcome of the continuing litigation highlighted in this article. It also remains to be seen what reforms, if any, will result from the failed ELNY receivership process.

In conclusion, it should also be noted that ELIC-related litigation continued in 2012 (Garamendi v. Altus Finance S.A.) when a federal jury in Los Angeles rejected a claim by California's Insurance Commissioner that, but for a conspiracy by French investor group Artemis S.A.:

• ELIC's original conservator (then California insurance commissioner John Garamendi) would have accepted an alternative bid in 1991 by state insurance guaranty associations; and
• The alternative bid would have retained profits from ELIC's junk bond portfolio for the benefit of policyholders including ELIC structured settlement recipients.

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

This blog post completes S2KM's series "Structured Settlements in 2012":

• Part 1 - Primary market
• Part 2 - Settlement planning
• Part 3 - Secondary market
• Part 4 - Executive Life of New York

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.

NYLB Role in ELNY Disaster

The comprehensive analysis of the Executive Life of New York (ELNY) liquidation published last week by the National Underwriter Life & Health magazine on its LifeHealth Pro website describes a "slow-motion disaster of gross mismanagement" the magazine claims will result in severe collateral damage not only to hundreds of ELNY structured settlement shortfall victims but also to the life insurance industry more generally.

In its lead article, titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the National Underwriter report intersperses profiles of five ELNY structured settlement shortfall victims with an historical summary of the 21 year ELNY rehabilitation and liquidation process.

The historical summary concludes:

• "[T]he ELNY rehabilitation, restructuring and liquidation have been nothing short of disastrous. Not only did regulators fail to protect a company from being dis-mantled by its insolvent parent, it failed to adequately manage the company from Day One. It failed its self-appointed fiduciary duty to serve ELNY’s payees. It failed to act with integrity, and it failed to uphold the social compact between insurers and their customers that if the money needs to be there, it will be there. Always. Without fail. Without exception."
• "At every single turn with ELNY, there was failure after failure to uphold the public’s trust. The state of New York, and especially the New York Liquidation Bureau, so badly disrupted the leap of faith between insurer and insured that the ripples will be felt for years to come, as every one of ELNY’s shortfall payees tells anyone who will listen that insurance and annuities are not worth it. That the money will not be there when it is needed, that the government will not protect the public." (emphasis added)
  

The National Underwriter article challenges the conventional explanation of ELNY's downfall which S2KM reported previously in "The Fall of First Executive".  Instead, it assigns primary blame to the New York Liquidation Bureau (NYLB), the non-government entity to which the New York Insurance Superintendent delegated ELNY management responsibilities beginning in 1991.

Describing the NYLB as "a rogue agency known for its codes of secrecy and characterized by many who spoke for this story as ineffective and mismanaged at best, and a snake pit of corruption at worst", the article highlights many examples of alleged mismanagement and lack of disclosure related to the ELNY liquidation:

• Failure to prepare and/or maintain any financial reports for ELNY for the years 1990, 1991 and 1992.
• The 1991 decision to sell almost all of ELNY's non-structured settlement business along with its non-junk bond investment portfolio to MetLife.
• Predicating the rehabilitation plan on unrealistic assumptions such as 30-year U.S. government treasuries maintaining an average interest rate of nine-and-a-half percent.
• Selling ELNY's high yield bond portfolio for a steep discount in 1991 at the bottom of the "junk bond" market.
• Reinvesting the proceeds in an unsafe percentage of common stocks vs. more conservative bonds.
• Increasing ELNY gross liabilities by $500 million between 1999 and 2000 based upon questionable assumptions and without due diligence.
• Reporting discrepancies and irregularities including incorrect numbers of policyholders and thousands of purported policyholder birth dates after ELNY entered rehabilitation.
• Excessive NYLB staffing with dozens of administrators for ELNY despite contracted services for ELNY's claims (MetLife), asset management (Credit Suisse) and accounting (Milliman & Robertson).
• Alleged corruption resulting in the dismissal of NYLB superintendent Jody Hall in 2006 at a time when Hall allegedly "was making persistent efforts to examine the elusive financial records on ELNY". Note: the National Underwriter provides additional related details in a companion article titled "The Aborted New York Liquidation Bureau Investigation".
• NYLB's alleged "culture of secrecy" exemplified by:
  • Disclaimers on ELNY financial reports stating that conclusions drawn by anyone except NYLB would be “materially misleading.”
  • Conditional bonuses, paid out of estates under NYLB management, requiring NYLB retirees to sign non-disclosure agreements prohibiting comments about non-public NYLB information.
• A damning description of the NYLB in its own 2007 annual report stating that the Bureau:
  • Had "little viable management structure or professional culture at the most senior level,” and
  • Needed "to address untimely payment of claims, poor employee evaluation methods, gross financial mismanagement in the case of ELNY, and a complete lack of auditing."

In the context of NYLB's alleged "gross mismanagement", the National Underwriter article finds it especially offensive that Judge John Galasso granted the NYLB complete judicial immunity as part of his ELNY liquidation order with support from the Superintendent of New York State Department of Financial Services and NOLHGA.

Attorney Edward Stone filed a Notice of Appeal May 30, 2012 on behalf of 18 ELNY structured settlement shortfall victims as objectors with the Appellate Division of the Supreme Court of the State of New York, Second Department, challenging Judge Galasso's order. Oral arguments for the appeal are scheduled for November 15, 2012.

The National Underwriter article concludes: "the final chapter has not closed on ELNY, and there still is time to fix the problem without causing so much collateral damage." It urges the New York state government and/or the insurance industry to dedicate funds to fully restore ELNY and its shortfall victims.

For related S2KM reporting, see the structured settlement wiki and, more specifically:

• New York Liquidation Bureau
• ELNY Liquidation Order
• Elephant in the ELNY Court Room 
• ELNY Appeal - Objectors' Brief
• The ELNY Due Process Issue
• The ELNY Immunity Issue

ELNY Appeal - Immunity 2

Eighteen Executive Life of New York (ELNY) structured settlement shortfall payees (shortfall payees), as Objectors and Appellants, have challenged the Order of Liquidation and Approval of the ELNY Restructuring Agreement approved by Judge John M. Galasso on April 16, 2012 by filing an appeal with the Appellate Division of the Supreme Court of the State of New York, Second Department,

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees':
  • Due process allegations (ELNY Appeal - Due Process 1);
  • Arguments against granting judicial immunity to the Superintendent of the New York State Department of Financial Services, as ELNY Receiver and Respondent, (Superintendent) (ELNY Appeal - Immunity 1)
  • Arguments against granting judicial injunctive protection to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue);
• Featured analysis about the ELNY Immunity Issue by New York attorney Peter Bickford.
• Summarized due process arguments in the appellate briefs filed by the Superintendent and NOLHGA, as a non-party respondent, as well as the due process responses in the reply brief filed by the ELNY shortfall payees. (ELNY Appeal - Due Process 2)

This S2KM blog post summarizes the immunity arguments in the Superintendent's brief and the ELNY shortfall payees' reply brief. NOLHGA's appellate brief was limited to due process issues.

Superintendent

• Judge Galasso's order properly recognized that receivers, like the Superintendent, have judicial immunity for actions undertaken pursuant to court orders and statutory duties.
• Doing so is consistent with the judicial immunity that attached in the 1992 ELNY Rehabilitation Plan Order and with various Court of Appeals’ decisions and common law holding that judicial immunity protects court-appointed receivers from personal liability when they act pursuant to the court’s charge.
• The Supreme Court has subject matter jurisdiction to determine whether actions by the Superintendent, as ELNY Receiver, fall within the scope of judicial immunity.
• The objecting ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context.
• An action against a former receiver may not be maintained unless the order of discharge is vacated and leave to prosecute an action is granted.
• Article 74 proceedings are exclusive in their operation and furnish a complete procedure for protecting the rights of all interested parties.
• The Supreme Court recognized in 1992 that the Superintendent, as ELNY's Receiver, and those working on his behalf were “discharged from any liability for their acts ... in the performance of their duties incident to the rehabilitation of ELNY”.
• Judge Galasso's recognition that the Superintendent has judicial immunity for actions he took as court-appointed ELNY Receiver is uncontroversial.
• Any attack by ELNY shortfall payees on the judicial immunity should be rejected as moot because their counsel conceded during the ELNY liquidation hearing that "any claims that my clients might have had against anyone have gone stale due to the passage of time.”
• Although the shortfall payees suggest the Superintendent should be personally liable for “overcompensating himself and his agents” or “investing ELNY assets in risky ventures” the Supreme Court earlier reviewed and approved the investment strategies contained in the ELNY Rehabilitation Plan Order.
• Efforts by the ELNY shortfall payees to insert a “care and prudence” requirement into the immunity recognized by the Supreme Court would be inconsistent with the recognition that receivers are immunized even for negligence.
• To fall outside judicial immunity, the Superintendent’s conduct would need to constitute ultra vires acts such as fraud or self-dealing actions.
• The notion that “waste” necessarily is ultra vires is unsupportable.
• The ELNY shortfall payees' argument that immunity is improper rests on false premises, namely that it somehow shields the Superintendent from personal liability for ultra vires actions that have nothing to do with ELNY’s rehabilitation, including whether he acted with bad faith for his own pecuniary interest.
• The ELNY shortfall payees' admission that the Superintendent is “entitled to assert immunity for conduct related to [his]receivership duties” demonstrates that their challenge to judicial immunity is not ripe because claims have not yet been filed against the Superintendent.
• Because any liability resulting from the Superintendent's official conduct is charged to the property of the ELNY estate, there is no property against which to seek relief once the property is transferred from the ELNY estate and the Superintendent could be inundated by lawsuits absent immunity.

ELNY Shortfall Payees

• The Supreme Court would possess subject matter jurisdiction to address claims against the Superintendent in his official capacity as ELNY Receiver.
• That is not true, however, of claims against the Superintendent "in his own shoes" and "against his own assets".
• By statute, the Superintendent's personal assets are not before the Supreme Court in rehabilitation and/or liquidation proceedings under New York Insurance Law Section 7404.
• This distinction is both critical and dispositive of the jurisdiction issue before the Court of Appeals.
• The Superintendent's appellate brief fails to acknowledge this basic distinction between official-capacity and personal-capacity claims.
• The Superintendent points out the ELNY shortfall payees do not cite a single case addressing subject matter jurisdiction in this context. That is correct. Neither does the Superintendent.
• The issue, therefore, appears to be one of first impression. In this case, however, determining whether a statute limits jurisdiction requires only a reading of the statute.
• One requirement for subject matter jurisdiction is the existence of a "justiciable" issue.
• The Superintendent argues the ELNY shortfall payees' challenge to judicial immunity is "not ripe" because claims have not yet been filed against the Superintendent.
• Assuming the Superintendent is correct that the shortfall payees' challenge is "not ripe", then there was no justiciable issue in the lower court either.
• As worded, the immunity provision in Judge Galasso's order exceeds the scope of immunity afforded to private court-appointed receivers.
• The Superintendent does not dispute that his status and role, as a receiver, are no different than any other court-appointed private receiver. (citing Matter of Dinallo v. DiNapoli)
• Having gone to considerable effort to secure that ruling in the Dinallo case for his benefit (avoiding audits by the State comptroller), the Superintendent must accept the consequences in the ELNY case.
• In other words, his status and role are no different than any other court-appointed private receiver.
• The only immunity issue for the Appellate Court to decide, therefore, is narrow: what is the immunity to which private receivers are entitled in New York?
• To the extent the wording of Judge Galasso's ELNY liquidation order exceeds that scope, it is erroneous.
• Where the objecting ELNY shortfall payees and the Superintendent disagree on the immunity issue is the "scope of that immunity"
• The correct standard is: "As a general rule, a receiver who acts in good faith and with appropriate care and prudence is immune from personal liability for losses."
• The Superintendent's brief ignores this settled rule and argues instead that he is automatically immune for all actions as ELNY Receiver unless the shortfall payees show his actions were "ultra vires" or in bad faith.
• Lacking authority for this proposition, the Superintendent suggests the ELNY shortfall payees "concede" it. They do not.
• Having unilaterally deemed himself immune from all but undefined "ultra vires" acts, the Superintendent then asks the Appellate Court to rule that any "waste" by the Superintendent of ELNY's assets would not be "ultra vires".
• The Superintendent, however, does not dispute that the ELNY 1992 Rehabilitation Order prohibited waste by anyone, including the Superintendent, as ELNY Receiver.
• The objecting ELNY payees recognize that acting pursuant to specific court authorization is a legitimate defense for the Superintendent.
• During the 20 plus year ELNY rehabilitation, however, the Superintendent chose not to seek court approval for most of his actions.
• Although the Superintendent argues that the 1992 ELNY Rehabilitation Order contained immunity language similar to what Judge Galasso approved, the presence of such language in an interim order does not make such language any more correct in a final order.
• The Superintendent also argues that judicial immunity should be available after the ELNY liquidation concludes and there is no property in the ELNY estate from which to seek relief.
• The ELNY shortfall payees agree. In personal capacity claims, however, no relief would be sought from the ELNY estate. Nor would such claims be chargeable against the ELNY estate.
• The Superintendent's arguments concerning the merits of potential claims against the Superintendent are baseless and not before the court.
• Whether such claims would ultimately prove baseless is for another day and another court.
• The Superintendent also argues that all unspecified future claims against the Superintendent are time-barred because counsel for some of the objecting ELNY shortfall payees stated during the ELNY liquidation hearing: "any claims my clients might have had against anyone have gone state due to the passage of time."
• That argument is incorrect. Counsel was referring to potential claims against third parties such as persons who recommended the purchase of an ELNY annuity.
• With respect to the Superintendent, the statute of limitations might not yet be running because no final order has been finalized triggering benefit cuts.

For S2KM's complete and continuing ELNY reporting, plus copies of the shortfall payees' appellate briefs and an Executive Life timeline, see the structured settlement wiki.

ELNY Appeal - Immunity 1

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

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

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

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

Conclusions of the Appellant/Objectors' Brief

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

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

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

Judicial Immunity

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

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

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

1. Subject matter jurisdiction

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

2. New York legal authority

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

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