The Executive Life of New York (ELNY) liquidation plan approved in New York is now expected to be implemented in the third quarter of this year, perhaps as early as August, but the plaintiffs’ lawyer says he is not giving up the case, at least on breach of fiduciary duty.
New York’s highest court ruled to not hear the case seeking to prevent the plan or restructuring of the failed life insurance company. This cleared the way for liquidation to begin, including activating the participating insurers in the state guaranty funds, pledging more than $100 million to a special hardship fund, and topping off state guaranty funds and covering “orphan contracts” in states where ELNY was not licensed.
The National Organization of Life & Health Guaranty Funds (NOLGHA) said it is pleased with the decision that all challenges to the liquidation restructuring plan have been removed, and is looking at a third quarter unwinding of the estate.
ELNY was brought under rehabilitation by the New York Insurance Department in 1991 after its parent company in California was seized by regulators there. Some New York regulators said they feared a run on the company even though ELNY was not insolvent at the time. It is believed it slipped into insolvency after more than a decade of caretaking by the New York Liquidation Bureau sometime in 2002.
Edward Stone has warned his clients, the shortfall policyholders who will not get the full amount of their annuities, that benefit reductions will begin to occur soon.
The New York Court of Appeals decision, “while not entirely unexpected, is likely to result in benefit cuts to the shortfall victims of approximately $920 million,” Stone said.
He is going to try and overturn a contempt order against his firm and the firm of Christensen & Jensen for a class action lawsuit filed on Nov. 8, 2012, in Federal Court in New York against the Superintendent of Financial Services Benjamin Lawsky (and his predecessors) in their personal capacity, MetLife and Credit Suisse for breach of fiduciary duty and other causes of action arising out of the alleged mismanagement of the ELNY rehabilitation, and an alleged subsequent cover-up.
On Jan. 25th, 2013, Nassau County presiding judge on the ELNY case, Judge John M. Galasso, held the victims and their attorneys in civil contempt for filing the federal class action lawsuit in the Southern District of New York.
The actual ELNY Restructuring Agreement was signed by Galasso in April 2012.
Stone believes it is a constitutional issue – the state court cannot dismiss a federal complaint — and will take this suit to the Supreme Court, if necessary, but not the appeal itself of the restructuring plan.
Stone’s first stop is the Appellate Division, second Department.
If we get shut down by the Appellate Division, we will appeal to the Court of Appeals, Stone stated.
“We plan to perfect our appeal of the contempt order issued by Judge Galasso in response to the Superintendent’s motion to enforce what he terms ‘anti-suit injunctions.’ We hope that the Appellate Division will uphold United States Supreme Court precedent as articulated in Donovan vs. City of Dallas,” Stone said.
In that legal case, the court noted, “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 other’s proceedings.”
Galasso found the legal teams in contempt for “filing an action in federal court” and threatened further fines, making specific reference to “a motion to dismiss the federal complaint.”
“The fact that the Superintendent used ELNY assets to get Galasso to issue a patently unlawful and improper order confirms our suspicions that something is very seriously wrong with the receivership process in New York,” Stone alleged. He acknowledged it might take some time but said he was in it for the long haul.
Stone accused Lawsky and the New York Department of Financial Services of an alleged attempt to retaliate against the ELNY shortfall payees “by filing what amounts to a SLAPP (Strategic Lawsuit Against Public Participation) suit intended to intimidate the ELNY shortfall payees into withdrawing the federal class action lawsuit,” he alleged.
The DFS did not comment on the legal actions and the clearance for the restructuring to proceed by presstime. The three insurers who helped create the hardship fund with Lawsky, MetLife, Prudential Insurance and New York Life, also did not comment.
NOLGHA said it is pleased with the decision that all challenges to the liquidation restructuring plan have been removed.
Since the ruling, NOLHGA has been coordinating with the New York Liquidation Bureau and the American Council of Life Insurance (ACLI) (on behalf of the 39 life insurance companies who are voluntarily supporting the Restructuring Plan) to address the remaining technical components and implement the Restructuring Plan, which was approved by the lower court over a year ago, it stated.
“The industry’s voluntary enhancements to the restructuring plan will now come into play and help those affected by the company’s liquidation.”
The Hardship Fund, voluntarily established by the life insurance industry and independently administered by JAMS, is preparing now to help those people most affected by the ELNY liquidation, ACLI spokesman Jack Dolan stated.
“We are pleased the resolution of ELNY can now move forward without further delay. The industry’s voluntary enhancements to the Restructuring Plan will now come into play and help those affected by the company’s liquidation,” Dolan continued.
Stone figures the shortfall payees are not going to be made whole, despite the hardship fund.
“For more than 21 years, victims have been kept in the dark while assets set aside to provide for their long-term needs were squandered under the superintendent’s watch,” Stone wrote.
“Before filing the class action lawsuit, we asked the Superintendent to look into the single largest failed effort at ‘rehabilitation’ in the history of the State of New York and he refused,” Stone stated.