Beyond Structured Settlements

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

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

Superintendent

• The Supreme Court properly granted and continued its prior injunctions prohibiting lawsuits against the Superintendent.
• The Supreme Court had jurisdiction to continue and to grant the injunctions.
• New York Insurance Law Section 7419(b) grants trial courts broad discretion to issue anti-suit injunctions during liquidation and rehabilitation proceedings.
• Section 7419(b) does not preclude courts from enjoining claims seeking to hold the Superintendent personally liable for malfeasance or breach of fiduciary duty.
• The ELNY shortfall payees' challenge to the injunctions was not properly preserved in the Supreme Court.
• The injunctions protecting the Superintendent and his agents were first issued in 1991 as part of the ELNY rehabilitation order.
• The ELNY shortfall payees failed to appeal the 1991 and 1992 ELNY orders containing the injunction against the Superintendent and his agents.
• Because those injunctions are final and non-appealable, the shortfall payees are precluded from seeking to overturn those injunctions now.
• The proper avenue for ELNY shortfall payees to challenge the scope of the injunctions is to file a motion to modify with the Supreme Court.
• The shortfall payees never objected to the scope of the injunctions during the ELNY liquidation hearing nor demonstrated that the interests of justice required modification.
• Because the shortfall payees did not seek modification below, their attempt to raise this issue for the first time on appeal is not appropriate.
• The Supreme Court did not abuse its discretion by issuing and continuing its prior injunctions.
• The shortfall payees' assertions are based upon the false premise that the Superintendent and his agents were acting in their individual capacities in the ELNY rehabilitation.
• The ELNY shortfall payees are now asking the Appellate Court to allow ELNY policyholders and creditors to file lawsuits against the Superintendent outside of the receivership court and process.
• This request by the ELNY shortfall payees is directly contrary to the public interest in the single management of a liquidation that New York insurance law is intended to protect.

ELNY Shortfall Payees

• The Supreme Court lacked jurisdiction and statutory authority to permanently enjoin claims against the Superintendent in his personal capacity.
• Without addressing common law, the Superintendent's sole argument supporting subject matter jurisdiction is that New York Insurance Law authorizes the injunction.
• The ELNY shortfall payees agree that, if Section 7419 does authorize an injunction against personal-capacity claims, then the Supreme Court possessed subject matter jurisdiction.
• As a threshold issue, however, the Superintendent argues that the standard for reviewing the injunction order should be "abuse of discretion". That is incorrect.
• The dispositive issue on appeal is statutory interpretation. Can the words "prevents interference with the superintendent" authorize the injunction of claims against the Superintendent in his personal capacity?
• The Supreme Court's exercise of discretion becomes an issue only if the New York statute authorizes such an injunction.
• Section 7419 of the New York Insurance Law does not authorize permanent injunctions against personal-capacity claims.
• The Superintendent claims the statutory reference to injunctions as "the court deems necessary to prevent interference with the superintendent or the proceeding" insulates the Superintendent from liability for his own personal conduct.
• This interpretation is inconsistent with the Insurance Law and requires the Appellate Court to read the words "interferance with the superintendent" in isolation, ignoring all other words in Article 74.
• None of the cases cited by the Superintendent support the proposition that Section 7419 authorizes an injunction against personal-capacity claims - as opposed to official-capacity claims.
• The words and the distinction are taken directly from multiple New York appellate cases, and they are dispositive.
• Even if Article 74 authorized an injunction, it would be an abuse of discretion for Judge Galasso to use that authority to ban claims for which the Superintendent is not immune.
• Because New York law limits the immunity granted to private receivers, it is an abuse of discretion to grant unrestricted immunity in the guise of a blanket injunction.
• The Superintendent's claim that the ELNY shortfall payees are seeking an "unfettered right for all policy holders and creditors of ELNY to commence actions against the [Superintendent] outside of the receivership court" is incorrect.
• The ELNY shortfall payees merely ask that the scope of the injunction be consistent with New York law.
• The shortfall payees could not have appealed the original 1991 ELNY rehabilitation order. They lacked standing because they had not incurred any loss of benefits in 1991.
• Their basis for seeking appellate relief only occurred once Judge Galasso entered the ELNY liquidation order and injunction causing their loss of property.

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 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 - Due Process 2

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

Status of Appeal:

• The ELNY shortfall payees served and filed their brief and the record on appeal on Friday, August 17, 2012. For S2KM's summary, see: ELNY Appeal - Objectors' Brief.
• The Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY Receiver and Respondent, served and filed his brief on Friday, September 7, 2012.
• The National Association of Life and Health Guaranty Associations (NOLHGA), as a non-party respondent, also served and filed a supporting brief on September 7, 2012.
• The ELNY shortfall payees served and filed a reply brief on Friday September 14, 2012.
• The Appellate Court is expected to schedule oral argument "as soon as practicable".

In prior blog posts, S2KM:

• Summarized the ELNY shortfall payees':
  • Due process allegations (ELNY Appeal - Due Process 1)
  • Arguments against granting judicial immunity to the Superintendent (ELNY Appeal - Immunity 1)
  • Arguments against granting judicial injunctive protection to the Superintendent (ELNY Appeal - Injunction 1)
• Provided additional due process analysis (ELNY Due Process Issue)
• Reported on the ELNY Immunity Issue featuring analysis by New York attorney Peter Bickford.

This blog post summarizes the due process arguments presented in the appellate briefs filed by the Superintendent and NOLHGA as well as the due process responses included in the reply brief filed by the ELNY shortfall payees. A subsequent S2KM blog post will summarize and compare the immunity and injunction arguments.

Superintendent

• The Court-ordered notice for the ELNY liquidation hearing satisfied due process requirements.
• Not only was the notice constitutionally adequate, it far exceeded the notice usually provided in insurer liquidation cases.
• A longer notice period would not have had any relevant impact upon the Court’s approval of the liquidation and restructuring plan.
• The Court properly exercised its broad discretion in:
  • Denying objecting shortfall payees' motion to compel discovery.
  • Sealing objections containing personal information.
  • Denying the shortfall payees' mid-hearing request to call newly disclosed witnesses.
• Conclusions - the Court:
  • Correctly held that the notice provided complied with the insurance law and due process.
  • Properly exercised its discretion in ruling on discovery and case management issues.

ELNY Shortfall Payees' Response

• The notice was inadequate in numerous respects. For examples:
  • The Court required payees to disclose all of their supporting documentation without discovery requests. Until the hearing, the payees had no reason to suspect that this obligation would be one-sided.
  • The Court-approved notice did not tell the payees that they would be required to file formal discovery requests or how to do so.
  • Although the Superintendent says he sent notices to the last known address in "ELNY's" records, the Superintendent had been managing ELNY for 20 years. The records, therefore, were his records and he had responsibility for keeping the addresses current.
• The lack of fair process prejudiced the payees.
  • The Superintendent's brief does not refute most of the payees' facts on this issue.
  • The Superintendent argues that any constitutional deprivation did not prejudice the payees.
  • However, an undisputed inability to challenge an opponent's evidence, resulting in a one-sided presentation, is patently prejudicial.
  • The inability to obtain assistance from an expert on complicated issues to permit a meaningful defense is prejudicial.
  • Findings based upon improperly one-sided evidence are inherently defective.
  • The Superintendent's "no prejudice" argument ignores the very purpose of due process - to allow people a true day in court.
  • Due process does not require ELNY shortfall payees to prove in advance that they would have procured a different outcome if they had been granted a fair hearing.

NOLHGA

• NOLHGA submitted its brief on appeal "to address a core, foundational error in Appellants’ argument": their "subtle but pervasive claim" that NOLHGA's early involvement in developing the ELNY restructuring plan denied the ELNY shortfall payees their due process rights because the shortfall payees were not afforded an equivalent role.
• The insurance laws of New York and other states grant state guaranty funds, operating through NOLHGA, a central and special role in life insurer insolvency proceedings.
• The state guaranty associations had no "conflict of interest" that implicated the due process rights of the objecting ELNY shortfall payees.
• Because the New York Superintendent serves as the statutorily mandated receiver “to protect the interests of policyholders in the liquidation proceeding", there generally is no need for policyholders to speak on their own behalf as a matter of due process.
• Therefore, the pre-liquidation consultations between the Superintendent and the state guaranty associations does not evidence any denial of due process rights for the ELNY shortfall payees.

ELNY Shortfall Payees' Response

• Most significantly, NOLHGA's arguments do not address issues on appeal.
• With respect to insurance industry involvement, the ELNY shortfall payees' chief complaint is one of fairness. While excluding ELNY policyholders, the Court permitted NOLHGA and others access, notice, disclosure and participation. No one has argued otherwise.
• Concerning conflicts of interest, NOLHGA objects to this statement by the ELNY shortfall payees: "[t]he [guaranty] associations' interest was in limiting their contributions, and the payees' interest was in maximizing them."
• In support of their statement, the objecting ELNY shortfall payees cite former New York Superintendent Michael Corcoran who stated the following in 2002 when he testified before Congress about ELNY: "The whole thrust [of state guaranty funds] is to try to pay as little as possible".

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

ELNY Facilitation Plan

The New York Liquidation Bureau (NYLB) website for Executive Life of New York (ELNY) has 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 John Galasso on April 16, 2012 as part of the ELNY Liquidation Order.

The ELNY Liquidation Order is currently being appealed by 18 structured settlement shortfall payees who allege due process violations and improper granting of immunities and injunctions to protect the Superintendent of New York's Department of Financial Services, and his agents, acting as ELNY's Receiver. For more detailed S2KM reporting about the ELNY appeal, see the structured settlement wiki.

Key Elements of the ELNY Facilitation Plan

• Optional agreement between GABC and each ELNY SSA owner that chooses to become party to it.
• Ancillary to the Restructuring Plan and, therefore, does not need to be executed in order for the Restructuring Plan to close.
• GABC has contracted with third-party administrator Alliance-One Services, Inc. to make benefit payments to SSA payees on behalf of GABC.
• Participating ELNY SSA owners will have the option to direct supplemental payments to their SSA payees through Alliance-One Services.
• If SSA Owners exercise this option, they will be responsible to provide funds to Alliance-One Services who will then make payments to the appropriate SSA payees.
• Neither GABC nor Alliance-One Services will be responsible for funding any SSA owner payments.
• If SSA Contract owners prefer to make other arrangements to pay SSA payees, they are not required to participate in the Facilitation Plan.
• Drafted and negotiated by representatives of GABC and a group of ELNY SSA owners, the Facilitation Plan is not subject to negotiation by individual ELNY SSA owners.

For a summary of the Facilitation Plan as well as the Facilitation Plan itself, see the NYLB's ELNY website.

ELNY Appeal - Due Process 1

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

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

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

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

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

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

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

Elephant in the ELNY Court Room

Due to a lack of basic accountability standards, New York’s receivership system has failed Executive Life of New York (ELNY), its policyholders and beneficiaries, as well as the insurance industry and its customers, according to New York attorney Peter Bickford in a new article titled "The Elephant in the Court Room".

Bickford, whose legal specialties include insurance and reinsurance operational, regulatory and solvency issues, has written previously about the "flawed receivership process" in New York that he maintains has resulted in ELNY's liquidation and restructuring. See, for example, "The Trouble with ELNY".

Bickford's newest article expands this critique and provides a valuable summary analysis of the ELNY failed rehabilitation and subsequent liquidation hearing.

Bickford observes that the 1992 ELNY rehabilitation plan, "like the Titanic, was doomed the moment it left port". For reasons never satisfactorily explained, the ELNY rehabilitation plan differentiated between ELNY's traditional life and annuity business and its single premium annuities individual annuities (SPIAs) including all ELNY structured settlement annuities.

Pursuant to its rehabilitation plan, ELNY's traditional business was transferred to Metropolitan Life, along with ELNY's strongest statutory reserve assets, and these policyholders "received an equivilent (sic) policy from Met Life and suffered no material financial consequences." Although administered by Met Life, the structured settlement annuities and other SPIAs were left in ELNY along with its weakest ("junk bond") assets.

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent. According to annual reports of the New York Liquidation Bureau (NYLB), which Bickford obtained through Freedom of Information Law requests, ELNY's cash flow went negative in 2002 - ten years following court approval of its Rehabilitation Plan and ten years before its Liquidation Order and Restructuring Plan were approved by New York State Supreme Court Judge John Galasso.

Bickford points out that even before ELNY's first external audit in 2006 (resulting in a substantial increase in reserves), the NYLB acknowledged that the reserve standard used in its annual statements “substantially understate[d] reserves when compared to reserves that would be required to satisfy regulatory requirements for a going concern insurance carrier.”

Bickford asks: "why weren’t proper accounting and reserve levels required or maintained, particularly for an entity that was solvent at the time it was taken into rehabilitation to protect it and its policyholders?"

The explanation, according to Bickford, results from fundamental flaws in New York's life insurance receivership process. "Counter intuitively" Bickford states, "when a company is placed in rehabilitation in New York the company ceases to be regulated":

• "The rigorous statutory requirements for filings, reports or certifications imposed on other licensed companies are no longer imposed on estates in rehabilitation;"
• "[T]here are no periodic regulatory reviews, examinations or communications;"
• "[T]here is no regulatory oversight of the operations, assets or finances; and"
• "[T]here is no mechanism for regulatory oversight of financial condition or compliance with the insurance law or regulations."

If ELNY had not been in rehabilitation, Bickford maintains "it is highly unlikely that the regulators would have allowed it to get to the point where the estate is today." Assuming ELNY had become insolvent outside of rehabilitation, Bickford asserts "the company’s officers and directors, its independent auditors, actuaries and other agents, could all potentially — and probably would — have been held accountable for their actions or inactions contributing to its failure."

Although New York Insurance Law, according to Bickford, does not provide immunity for the Superintendent or his agents in his separate, non-regulatory role as receiver, Judge Galasso granted judicial immunity, as requested by the Superintendent, in the ELNY Liquidation Order. In addition, Judge Galasso accepted the totality of the Superintendent's arguments and approved the ELNY Restructuring Agreement as proposed by the Superintendent and 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 approximately 1550 ELNY payees (including all structured settlement payees) out of a total of approximately 9700 current ELNY payees. The remaining, approximately 8150 current ELNY payees expect to receive 100 percent of their promised future payments.

To what extent will defendants and liability insurers supplement the ELNY structured settlement shortfalls? The answer is uncertain and depends, in part, on an issue S2KM addressed in a prior blog post: do qualified assignments extinguish the liability of defendants and/or liability insurers for shortfall payments resulting from the ELNY liquidation?

Bickford's article provides a succinct summary of objections raised by ELNY shortfall victims and their attorneys to the ELNY liquidation proceedings and ELNY restructuring plan:

• "Given the complexity and consequence of the proposed plan, the notice provided to payees was inadequate and untimely;
• "The plan will be administered and overseen by the very people that caused the shortfall — the rehabilitator and his agents;
• "The people most affected by the plan, the shortfall payees, were not consulted in the development of the plan and have not been given any reasonable opportunity to consider and propose an alternative plan;
• "The requested judicial immunity for the rehabilitator and everyone connected with the plan and its implementation is unprecedented and unwarranted given the failed history of the rehabilitation;
• "By placing the full burden of the shortfall on a small percentage of the payees, the plan is neither fair nor equitable, and creates an improper subclass of claimants; and
• "Collectively these objections, including a denial of any right to opt out of the plan, constitute an unconstitutional taking of property without due process." Note: for a summary of the due process issue, see this prior S2KM blog post.

Bickford's article further highlights the following legal issues which he states "could linger in the courts for years":

• "The propriety of the court including the rehabilitator’s request for judicial immunity for himself and his agents in the signed liquidation order;
• "Whether the up front netting of the guaranty funds’ subrogation rights (so that no guaranty fund actually pays its full cap on any claim) contradicts the legislative intent of the caps;
• "Whether the plan results in an improper sub-class of claimants — the shortfall annuitants;
• "The scope of claim-over rights of shortfall annuitants against policy owners, insurance brokers, attorneys or others involved in the original settlements;
• "The role and rights of factors that acquired claim payments from annuitants; and
• "The scope of responsibility of the rehabilitator and his agents as fiduciaries for all ELNY policyholders and payees for the failed rehabilitation."

Bickford's article concludes with a critical observation: although the ELNY Restructuring Plan may solve the immediate ELNY problem (at the expense of the remaining ELNY shortfall victims), it does not address the broader, underlying systemic defects inherent in the New York life insurance receivership system.

For additional articles by Peter Bickford, see his website. For S2KM's complete and continuing ELNY reporting, see the structured settlement wiki.

ADDENDUM (July 4, 2012): Bickford's article adds one additional observation that should be highlighted. ELNY's liquidation will apparently exhaust the New York life insurance guaranty fund. 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. For additional information about the role of state guaranty funds in the life insurer liquidation process, see this prior S2KM blog post.

ELNY Notice of Appeal

Attorney Edward Stone has filed a Notice of 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 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 of the New York State Department of Financial Services (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."

In an exclusive interview with S2KM, Attorney Stone characterized the appeal as "the next step in a crusade by some of the ELNY shortfall victims against an unfair and discriminatory restructuring plan".

Stone added: "Judge Galasso's decision came as no surprise as the Liquidation proceedings were carefully orchestrated to yield a predetermined result" according to Stone. No one who attended the hearing actually believed that the objectors had a chance to prevent the Superintendent from pushing through its plan."

Stone alleges:

• Objectors were "denied the right to call witnesses and were repeatedly rebuffed in their efforts to obtain critical data used by the Superintendent's actuaries to project future liabilities."
• Judge Galasso "ordered injunctions and immunities to continue what appears to be a massive coverup. The New York Liquidation Bureau took a solvent life insurance company and rendered it insolvent at the expense of the shortfall victims. Why is the Bureau entitled to a free pass after decades of waste and mismanagement?"

Stone said he hopes the New York State Supreme Court Appellate Division will "set the record straight" and provide ELNY shortfall victims access to the data used by the Superintendent and NOLHGA to formulate the proposed ELNY restructuring plan approved by Judge Galasso.

"I am convinced that my team can quickly come up with a better plan that is less discriminatory if we are allowed access to original source materials containing the real ELNY payment schedules," Stone stated. "This data should have been made available to the shortfall victims."

For S2KM's complete and continuing reporting about the Executive Life of New York Liquidation, see the structured settlement wiki.

Spring 2012 Conferences

During the next four weeks, S2KM will attend and review three professional educational conferences addressing structured settlement and settlement planning issues:

• Richard B. Risk Jr. Settlement Planning Practicum
• National Structured Settlement Trade Association (NSSTA) Annual Meeting
• Society of Settlement Planners (SSP) Annual Meeting

Risk Practicum

A national authority on structured settlement law, Richard Risk has endowed a series of annual settlement planning "practicums" at his law school alma mater, The University of Tulsa College of Law. Risk believes the 2012 practicum, scheduled for April 13-14, will represent the first time any law school in the country has formally recognized settlement planning as a topic of legal education. Speakers: Joseph Tombs; Patrick Hindert; Mark Popolizio; Jeremy Babener; Jack Meligan; Carl Pierce.

NSSTA Annual Meeting

NSSTA's Annual Meeting, scheduled for April 25-27 in Washington, D.C., will feature a mixed agenda of business and political meetings; NSSTA "Takes the Hill" meetings with Members of Congress and senior Congressional Staffers; plus an educational program headlined by Senator Max Baucus, Congressman Richard Neal, NOLHGA Chairman Thomas Ronce and President Peter Gallanis, Mike Montemurro of the IRS, a Congressional Chiefs of Staff panel, plus various NSSTA leaders and property & casualty insurance representatives.

SSP Annual Meeting

SSP will host its Annual Meeting April 29-May 1 in Las Vegas. The SSP educational program will feature 27 speakers discussing strategies to improve and grow the settlement planning market. Some of the SSP presentation categories:

• Revitalizing and reinventing structured settlements
• New NAIC annuity regulations
• Insurance, investment and administrative options
• Tax developments, strategies and legislative proposals
• Medicare (MSA) and Medicaid (SNT) updates
• What ELNY means for settlement planners

In addition to these three 2012 conferences, S2KM previously attended and reviewed the Academy of Special Needs Planners (ASNP) 2012 Annual Meeting. For S2KM's complete reporting about professional associations whose members participate in structured settlements and settlement planning, see the structured settlement wiki.

New York Liquidation Hearing - 9

Following 11 days of hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso is deciding whether to sign an Order of Liquidation and Approval of a Restructuring Agreement for Executive Life of New York (ELNY) as proposed by the Superintendent of the New York State Department of Financial Services (Superintendent), as ELNY's Receiver.

The ELNY hearings have raised a variety of issues not all of which Judge Galasso will be expected or required to address:

• Will Judge Galasso approve the ELNY Liquidation Order and Restructuring Agreement as proposed by the Superintendent? 
• Does Judge Galasso have any other options?
• Why wouldn't Judge Galasso appoint a "Special Master" to consider objections and/or alternatives to the proposed ELNY Restructuring Agreement?
• Would his denial of the proposed Order necessarily result in a "statutory liquidation" under New York law?
• What would a statutory liquidation mean for: 1) ELNY annuity policyholders and payees; 2) NOLHGA and the participating Guaranty Associations (PGAs); 3) New York Governor Andrew Cuomo and Superintendent Benjamin Lawsky; 4) the structured settlement industry?
• Would any of the ELNY structured settlement shortfall payees be better off under a statutory liquidation?

Assuming Judge Galasso does approve the proposed Order:

• Will the Liquidation Order grant legal immunity to the Superintendent, as ELNY Receiver, and his agents, including the New York Liquidation Bureau (NYLB), for their acts and omissions in managing ELNY's Rehabilitation since 1991?
• What is the legal justification for any such grant of immunity?
• Did Judge Galasso commit reversible errors when he denied various motions by attorneys representing ELNY structured settlement payees who expect to experience shortfalls under the proposed Restructuring Agreement?
• Would attorneys for the ELNY shortfall payees appeal the result?
• What would be the basis for their appeal?
• Assuming an appeal bond is required, how much would it cost?
• Assuming the ELNY shortfall payees won an appeal, what would they hope/expect to accomplish with a new hearing?
• Besides an appeal, what other options, if any, exist for ELNY structured settlement shortfall payees?

Additional issues raised, but not definitively resolved, during the ELNY hearing:

• When did ELNY become insolvent?
• Who was responsible for ELNY's insolvency?
• How many of the ELNY structured settlement shortfall annuities are funded with Qualified Assignments as opposed to "Buy and Hold" funding?
• Who are the defendants, liability insurers and/or brokers who purchased or funded ELNY annuities with anticipated shortfalls?
• Which PGAs will contribute to specific ELNY contracts?
• Which life insurance companies have offered to make voluntary contributions and/or enhancements to Guaranty Association Benefits Company (GABC)?
• Why would they contribute anything? And, why won't they contribute more?
• How much additional money would be required to make all ELNY structured settlement payees whole?
• What impact, if any, will the ELNY Liquidation have upon:
  • The structured settlement industry?
  • The existing state insurance regulatory system?
  • The insurance liquidation process in New York?

For additional S2KM reporting about the ELNY liquidation, see the structured settlement wiki.

ELNY Liquidation Hearing - 6

During the second day of the Executive Life of New York (ELNY) Liquidation Hearing, presiding Judge John M. Galasso stated: "I have a gun to my head; if the annuitants don't get the Restructuring Agreement, they get a straight liquidation."

That gun discharged metaphorically yesterday in Room 35 of the Nassau County New York State Supreme Court Building. The target, however, was not Judge Galasso. Instead, Judge Galasso took full aim at attorney Edward Stone and the ELNY structured settlement shortfall payees. Some of the key developments:

• No Additional Witnesses - After allowing Stone's expert witness Douglas Hartz to testify and be cross-examined on March 26, Judge Galasso refused to allow Stone to introduce additional witnesses on behalf of the shortfall victims stating "they wouldn't help". Among the witnesses Stone had listed in addition to Hartz:
  
  • Ronald Kehrli - former Chief Executive Officer of ELNY prior to ELNY entering Rehabilitation.
  • Corwin K. Zass - an expert actuary.
  • Marshall Sterman - a forensic accountant.
  • Thomas Gober - a forensic accountant and insurance fraud investigator.
  • Laird Zacheis - a consulting actuary.
• Objections Under Seal - Denying previous requests by attorneys for ELNY shortfall victims to review the compendium of objections submitted by all Objectors to the proposed ELNY Restructuring Agreement, Judge Galasso decided "sua sponte" to place all objections "under seal" thereby preventing those objections from becoming a matter of public record and restricting access by attorneys for the structured settlement shortfall payees.
• Source Materials - Judge Galasso continued to deny attorneys for the shortfall payees access to critical source materials (including the MetLife ELNY database) relied upon by the agents and experts for the Superintendent of the New York State Department of Financial Services (Superintendent), as Receiver for ELNY, in formulating the Superintendent's proposed Restructuring Agreement for ELNY.
• Closing Arguments -  Judge Galasso scheduled closing arguments to begin today, March 28, 2012, with attorneys for the ELNY shortfall victims presenting first.

In their prior cross-examination of witnesses called on behalf of the Superintendent, attorneys representing ELNY structured settlement shortfall payees had attempted to convince Judge Galasso that the proposed ELNY Restructuring Agreement was neither "fair and equitable" nor the "best possible plan". In presenting their clients' case, those attorneys indicated they planned to suggest improvements and/or alternatives.

By denying attorneys for the ELNY structured settlement shortfall payees the right: 1) to present all of their expert witnesses and 2) to review all objections plus critical source documents previously shared by the Superintendent and NOLHGA with their agents and experts, Judge Galasso appears to have added insult to injury by prematurely putting to rest what was supposed to be a fair and open hearing.

S2KM's complete reporting about the ELNY Liquidation Hearing is accessible on the structured settlement wiki.