California v. Altus Finance S.A.

Citation540 F.3d 992
Decision Date25 August 2008
Docket NumberNo. 06-55379.,No. 06-55391.,No. 06-55297.,06-55297.,06-55379.,06-55391.
PartiesState of CALIFORNIA, Plaintiff, and Steve Poizner,<SMALL><SUP>*</SUP></SMALL> as Insurance Commissioner of the State of California and as Conservator, Liquidator and Rehabilitator of the Estate of Executive Life Insurance Company, Plaintiff-counter-defendant-Appellant, v. ALTUS FINANCE S.A., a corporation organized under French law; CDR Enterprises, a corporation organized under French law; Credit Lyonnais S.A., a corporation organized under French law; Jean-Claude Seys, an individual; Jean Francois Henin, an individual; Jean Irigoin, an individual; Alain Mallart; Novatec, e/s/a SDI Vednome S.A.; Consortium de Realisation S.A., a corporation organized under French law; MAAF Assurances, a mutual insurer organized under French law; MAAF Vie S.A., a corporation organized under French law, Defendants, and Artemis S.A., a corporation under French law; Artemis Finance S.N.C., an entity d/b/u French law; Artemis America; Francois Pinault, Defendants-counter-claimants-Appellees. State of California, Plaintiff, and Steve Poizner, as Insurance Commissioner of the State of California and as Conservator, Liquidator and Rehabilitator of the Estate of Executive Life Insurance Company, Plaintiff-counter-defendant-Appellee, v. Altus Finance S.A., a corporation organized under French law; CDR Enterprises, a corporation organized under French law; Credit Lyonnais S.A., a corporation organized under French law; Jean-Claude Seys, an individual; Jean Francois Henin, an individual; Jean Irigoin, an individual; Alain Mallart; Novatec, e/s/a SDI Vednome S.A.; Consortium de Realisation S.A., a corporation organized under French law; MAAF Assurances, a mutual insurer organized under French law; MAAF Vie S.A., a corporation organized under French law, Defendants, Artemis Finance S.N.C., an entity d/b/u French law, Artemis America; Francois Pinault, Defendants-counter-claimants, and Artemis S.A., a corporation under French law, Defendant-counter-claimant-Appellant. State of California, Plaintiff, and Steve Poizner, as Insurance Commissioner of the State of California and as Conservator, Liquidator and Rehabilitator of the Estate of Executive Life Insurance Company, Plaintiff-counter-defendant, v. Altus Finance S.A., a corporation organized under French law; CDR Enterprises, a corporation organized under French law; Credit Lyonnais S.A., a corporation organized under French law; Jean-Claude Seys, an individual; Jean Francois Henin, an individual; Jean Irigoin, an individual; Alain Mallart; Novatec, e/s/a SDI Vednome S.A.; Consortium de Realisation S.A., a corporation organized under French law; MAAF Assurances, a mutual insurer organized under French law; MAAF Vie S.A., a corporation organized under French law, Defendants, Artemis Finance S.N.C., an entity d/b/u French law; Artemis America; Francois Pinault, Defendants-counter-claimants, and Artemis S.A., a corporation under French law, Defendant-counter-claimant-Appellee, v. National Organization of Life and Health Insurance Guaranty Associations; California Life and Health Insurance Guarantee Association, Plaintiff-intervenors-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Kevin Russell, Howe & Russell, P.C., Washington, D.C.; Gary L. Fontana and Jennifer R. McGlone, Thelen Reid & Priest, LLP, San Francisco, CA, for the appellant/cross-appellee.

James P. Clark, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA; Robert L. Weigel, Gibson, Dunn & Crutcher, LLP, New York, NY, for the appellee/cross-appellant.

Cindy C. Oliver and Craig R. Welling, Rothberger, Johnson & Lyons, LLP, Denver, CO, for the intervenors-appellants.

Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. No. CV-99-02829-AHM.

Before: T.G. NELSON, RICHARD A. PAEZ, and JAY S. BYBEE, Circuit Judges.

BYBEE, Circuit Judge:

This litigation arises from the 1991 insolvency and subsequent rehabilitation of the Executive Life Insurance Company (ELIC), following the largest insurance failure in California history. Pursuant to a judicially supervised rehabilitation plan, Insurance Commissioner John Garamendi1 (the Commissioner) oversaw competitive bidding for the assets of the ELIC Estate, which included a large junk bond portfolio. Altus S.A., a subsidiary of Credit Lyonnais S.A., which is controlled by the French government, and the MAAF Group, a consortium of French and Swiss insurers, submitted the winning bid. Altus purchased the junk bond portfolio for cash, and the MAAF Group agreed to create a new company to reinsure ELIC's outstanding insurance policies. Artemis S.A., a holding company controlled by Francois Pinault, subsequently purchased a percentage of that junk bond portfolio and the newly formed insurance company.

The rehabilitation plan was a resounding success. The Commissioner proclaimed the rehabilitation of ELIC "by any objective standards a home run," resulting in a full recovery for 92 percent of the insolvent insurer's former policy holders. The rehabilitation was also a home run for Artemis, which earned hundreds of millions of dollars in profit from appreciation of the ELIC Estate's junk bond portfolio.2

In 1999, however, years after the rehabilitation plan had been implemented, the Commissioner learned of a conspiracy between the members of the Altus/MAAF Group to circumvent regulatory barriers to foreign entities, like Altus, from issuing insurance in California.3 The Commissioner filed this civil suit against the members of the Altus/MAAF Group, Artemis, and Pinault, alleging intentional misrepresentation, concealment and conspiracy to defraud. The Altus/MAAF Group defendants settled or defaulted on the claims. The case proceeded to a bifurcated jury trial against Artemis and Pinault. The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) intervened to protect its interests as a losing bidder for the assets of the ELIC Estate.

After a nine-week liability phase trial, the jury found Artemis liable for conspiracy only and exonerated Pinault. The jury was unable to answer a special verdict form posing the Commissioner's principal theory of damages—that but for the Altus/MAAF Group conspiracy, the Commissioner would have selected the NOLHGA bid. The district court entered a Post-Verdict Order barring proffer of that theory in the damages phase of trial. The Commissioner presented two alternate theories of damages, and the jury awarded the Commissioner $0 in compensatory damages and $700 million in punitive damages. In an Order Re Punitive Damages, the district court vacated the punitive damages award. The court made findings of fact on the Commissioner's equitable claims and awarded him $241 million in restitution.

Parties on both sides appealed the judgment. The Commissioner and NOLHGA challenge the Post-Verdict Order and Order Re Punitive Damages and request reinstatement of the $700 million punitive damages award. On cross-appeal, Artemis challenges the award of restitution and denial of its motion for summary judgment on res judicata grounds, arguing that the Commissioner's claims are an impermissible collateral attack on the judicially approved rehabilitation plan and that the Commissioner should take nothing. For the reasons explained below, we affirm the Order Re Punitive Damages and the denial of Artemis' motion for summary judgment. We reverse the Post-Verdict Order, vacate the award of restitution, and remand to the district court for further proceedings.

I

Executive Life Insurance Company became insolvent in 1991, due in part to losses on the company's large junk bond portfolio. Pursuant to California law, Insurance Commissioner John Garamendi became conservator of the ELIC Estate under the supervision of the Los Angeles County Superior Court (the Rehabilitation Court). The Commissioner developed a plan to rehabilitate ELIC, which contemplated a public auction of the assets and liabilities of the ELIC Estate to a new California insurance company that would reinsure ELIC's existing life insurance policies and annuity contracts at a guaranteed minimum percentage of their former value.

A. Altus/MAAF Group Conspiracy to Acquire ELIC's Assets

After a competitive bidding process in October 1991, the Commissioner received eight bids, three of which merited full consideration: a joint bid by Altus Finance S.A. (Altus), a subsidiary of Credit Lyonnais S.A. that was controlled by the French government, and the MAAF Group, a consortium of French and Swiss insurance companies;4 a bid from the National Organization of Life and Health Insurance Guaranty Associations; and a bid by Sierra National Insurance Holdings, Inc. (Sierra). The NOLHGA and Sierra bids were "bonds-in," meaning that the ELIC junk bond portfolio would remain in the rehabilitated insurance company. In contrast, the Altus/MAAF Group bid was "bonds-out": Altus would purchase the junk bond portfolio for cash, and the MAAF Group would manage the rehabilitated insurance company without the risk associated with continued ownership of the junk bond portfolio.

On October 24, 1991, the Commissioner conditionally accepted the NOLHGA bid, but he identified several "serious legal issues" and "potentially grave problems" that NOLHGA would have to cure before its bid could be approved. NOLHGA responded to the Commissioner's demands on November 4, 1991; however, the Commissioner formally rejected the NOLHGA bid two days later, identifying numerous specific defects in the bid.

On November 12, 1991, Sierra submitted a Memorandum to the Commissioner, asserting that it had reason to believe that Credit Lyonnais and Altus maintained actual control of the MAAF Group in violation of California Insurance Code Section 699.5. In 1991, Section 699.5 prohibited entities controlled by foreign governments, like Credit Lyonnais and Altus, from...

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