Ito v. Investors Equity Life Holding Co.

• Decision Date: 27 February 2015
• Docket Number: No. SCAP–10–0000131.,SCAP–10–0000131.
• Citation: 135 Hawai'i 49,346 P.3d 118
• Parties: Gordon ITO, Insurance Commissioner of the State of Hawai‘i, Petitioner–Appellee, v. INVESTORS EQUITY LIFE HOLDING COMPANY, a Delaware Corporation, Appellant, and Hawaii Life and Disability Insurance Guaranty Association, Appellee, and Investors Equity Life Insurance Company of Hawaii, Ltd., a Hawai‘i Corporation, Respondent.
• Court: Hawaii Supreme Court

135 Hawai'i 49

346 P.3d 118

Gordon ITO, Insurance Commissioner of the State of Hawai‘i, Petitioner–Appellee,

v. INVESTORS EQUITY LIFE HOLDING COMPANY, a Delaware Corporation, Appellant,andHawaii Life and Disability Insurance Guaranty Association, Appellee,andInvestors Equity Life Insurance Company of Hawaii, Ltd., a Hawai‘i Corporation, Respondent.

No. SCAP–10–0000131.

Supreme Court of Hawai‘i.

Feb. 27, 2015.

James J. Bickerton and Nadine Y. Ando, Honolulu, for appellant.

William C. McCorriston and John Y. Yamano, Honolulu, for appellee Gordon Ito, Insurance Commissioner of the State of Hawai‘i.

David J. Reber, and Lindalee K. Farm, Honolulu, and Franklin D. O'Loughlin, pro have vice and Cindy C. Oliver, pro hac vice, for appellee Hawaii Life and Disability Insurance Guaranty Association.

NAKAYAMA, Acting C.J., Circuit Judge NACINO, in place of RECKTENWALD, C.J., recused, Circuit Judge TRADER, in place of McKENNA, J., Recused, and Circuit Judge LEE in place of WILSON, J., recused, with POLLACK, J. dissenting.

Opinion of the Court by NAKAYAMA, J.

I. INTRODUCTION

Investors Equity Life Holding Company (IELHC) is the former parent company and sole shareholder of Investors Equity Life Insurance Company of Hawaii, Ltd. (IEL). In 1994 IEL was liquidated, thus creating the IEL estate. The State of Hawai‘i Insurance Commissioner (Commissioner) was appointed as IEL's liquidator (Liquidator). This case concerns the Liquidator's denial of IELHC's purported claim to all remaining assets of the IEL estate.

In 1996, IELHC surrendered all of its shares in IEL to the Commissioner as part of a settlement agreement to resolve claims relating to IEL's insolvency. The Liquidator canceled IELHC's shares in IEL and issued new shares in IEL to the Hawaii Life and Disability Insurance Guaranty Association (HLDIGA).¹ As consideration for these new shares in IEL, HLDIGA cancelled $249,975 of its claims against IEL's estate arising out of its subrogation of covered IEL policyholders' claims.

The Liquidator proceeded to administer IEL's estate—marshaling assets, distributing funds, and filing interim reports. More than eleven years elapsed before, in 2008, IELHC wrote the Liquidator two letters claiming that IELHC presently held legal or equitable title to all of IEL's stock and demanding that the Liquidator deliver to IELHC all shares and assets remaining in IEL's estate.

After failing to resolve the dispute through mediation, IELHC filed a lawsuit in the Superior Court of California against current and former Insurance Commissioners, as well as other individuals involved in the liquidation of IEL (the California Lawsuit). The action was stayed on the grounds of forum non conveniens .²

In 2009, the Liquidator determined that IELHC's letters and its California Lawsuit constituted a claim against IEL's estate. The Liquidator denied the claim, and his determination was upheld by order of the Circuit Court of the First Circuit (circuit court).

IELHC appealed to the Intermediate Court of Appeals (ICA) and applied for mandatory and discretionary transfer to this court. We accepted IELHC's application for discretionary transfer on the grounds that the appeal presents a question of first impression of whether IELHC's letters to the Liquidator and the California Lawsuit constituted a claim against IEL's estate under Hawai‘i Revised Statutes (HRS) § 431:15–329 (2005).

In its opening brief, IELHC raises five points of error:(1)³ "The circuit court below had no subject matter jurisdiction to confirm an ‘IELHC claim’ which [Commissioner] Schmidt himself contrived, but which appellant has not brought"; (2) "The circuit court had no personal jurisdiction over appellant"; (3) "Because the California lawsuit is a prior pending action, the ‘IELHC claim’ which [Commissioner] Schmidt invented must be abated"; (4) "The summary procedures utilized by the circuit court denied appellant's rights to due process"; and (5) "Even if appellant had brought the ‘IELHC claim,’ which appellant had not, [Commissioner] Schmidt is judicially estopped from asserting that appellant's claim is too late." We hold that the circuit court did not err in concluding that IELHC asserted a claim against IEL's estate and that this claim was time barred. Furthermore, the circuit court had personal jurisdiction over IELHC and subject matter jurisdiction over IELHC's claim, there were no grounds for abating the adjudication of IELHC's claim, and the circuit court's procedures met constitutional due process requirements.

II. BACKGROUND

A. The liquidation of Investors Equity Life Insurance Company of Hawaii

IEL was an insurer whose business consisted of deferred annuities and traditional and interest-sensitive life insurance policies. On August 5, 1994, then State of Hawai‘i Insurance Commissioner Lawrence Reifurth commenced an insurance insolvency proceeding by filing a petition for the liquidation of IEL in the circuit court, pursuant to the Insurers Supervision, Rehabilitation and Liquidation Act (ISRLA),⁴ HRS §§ 431:15–306 (1993)⁵ and 431:15–301 (1993). IEL had a net deficit in excess of $90,000,000, and the Commissioner had seized its assets on June 22, 1994.

The petition for liquidation sought liquidation on the grounds that IEL was insolvent and that attempts to rehabilitate IEL would substantially increase the risk of loss to policyholders, would be futile, and would serve no useful purpose.⁶

Appellant IELHC—IEL's parent company and sole shareholder—intervened in the proceeding by stipulation of the parties. IELHC opposed the petition for liquidation and petitioned for approval of a rehabilitation plan wherein IELHC would contribute assets to IEL that would generate a potential cash flow of more than $87,000,000.

The circuit court⁷ concluded that IELHC's rehabilitation plan was "not reasonable or feasible." The court further concluded that, pursuant to HRS § 431:15–104(c) (1993), only the Commissioner could seek approval of a rehabilitation plan and, pursuant to HRS § 431:15–305 (1993), only directors of an insurer could object to a petition for liquidation. The court granted the petition for liquidation, ordered the liquidation of IEL under the Commissioner's supervision, appointed the Commissioner as liquidator of IEL, and directed the Liquidator to take possession of IEL's assets and administer them under the general supervision of the court. Judgment on the petition for liquidation was entered in favor of the Commissioner and against IEL and IELHC on January 27, 1995.

IELHC appealed the judgment. The appeal was dismissed by a January 11, 1996 opinion of this court, holding that IELHC did not have standing to oppose the petition to liquidate IEL because HRS § 431:15 did not recognize the interests of shareholders—such as IELHC—of an insolvent insurer. See Metcalf v. Investors Equity Life Ins. Co., 80 Hawai‘i 339, 340, 910 P.2d 110, 111 (1996) (hereinafter Metcalf v. IEL ).⁸

During the pendency of the appeal, the circuit court,⁹ by order on August 23, 1995, approved the Liquidator's liquidation plan for the disbursement of IEL's assets. The order established a claims bar date of December 1, 1995 for the submission of creditor claims to IEL assets. The order also approved a service agreement between the Liquidator and HLDIGA and approved disbursements to HLDIGA. Under the agreement, HLDIGA assumed policy coverage for the vast majority of policyholders—all but about 100 of approximately 13,000—and the policyholders covered by HLDIGA were deemed to have assigned and subrogated all of their claims against IEL's estate to HLDIGA. As of November 30, 1995, HLDIGA had $143,000,000 in claims against IEL's estate due to HLDIGA's assumption of IEL's policyholder liabilities.

As part of the liquidation plan, on March 22, 1995, the Liquidator, HLDIGA, and Hartford Life Insurance Company (Hartford),¹⁰ the assuming insurer, entered into an Assumption Reinsurance Agreement, which was approved by the circuit court on June 21, 1995.¹¹ Under the agreement, Hartford reinsured all of IEL's policyholders previously assumed by HLDIGA. HLDIGA retained continuing obligations to contribute to the funding of the policies Hartford assumed.

B. The Commissioner's lawsuit against Investors Equity Life Holding Company

Contemporaneously with the liquidation of IEL, then-Commissioner Lawrence Reifurth brought suit against IELHC and Gary Vose (the sole shareholder, director, and President of IELHC), among others, for alleged tortious misconduct in causing the failure of IEL. The Commissioner's complaint, filed November 17, 1994, alleged that IELHC diverted IEL's assets into risky investments and reckless real estate transactions, primarily for the benefit of non-IEL entities. IELHC settled the lawsuit with the Commissioner by executing a settlement agreement on July 16, 1996. As a condition of settlement, the agreement provided that IELHC surrender to IEL all of its shares in IEL for cancellation and forfeiture. On October 9, 1996, Gary Vose, on behalf of IELHC, surrendered 208,693 shares of IEL to Commissioner Metcalf, for "cancellation and forfeiture pursuant to HRS § 431:5–101." To evidence the surrender, Gary Vose executed a document entitled "Stock Surrender and Forfeiture," to which he attached the original stock certificate.

The circuit court,¹² in the liquidation proceeding, held a hearing on the Motion to Approve Settlement Agreement on October 28, 1996 and approved the agreement on November 8, 1996. Counsel for IELHC appeared at the hearing. On November 27, 1996, IELHC, through its president Gary Vose, executed a Waiver of Right of Appeal of Order Granting Liquidator's Motion to Approve Settlement Agreement, in which it "waive[d] and release(d) any and all rights [it had], or may in the future have, to appeal from, or otherwise seek judicial review or reconsideration of, the Order Granting Motion to Approve Settlement Agreement, including any and all written orders, findings of fact, conclusions of law, decisions...