Bank v. Petitioner
| Decision Date | 28 June 2011 |
| Citation | 952 N.E.2d 463,928 N.Y.S.2d 647,17 N.Y.3d 208,2011 N.Y. Slip Op. 05542 |
| Parties | ABN AMRO Bank, N.V., et al., Appellants, et al., Plaintiffs,v.MBIA INC. et al., Respondents. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Sullivan & Cromwell LLP, New York City (Robert J. Giuffra, Jr., Michael T. Tomaino, Jr., Brian T. Frawley, Julia M. Jordan, William H. Wagener and Jonathan C. Shapiro of counsel), Skadden, Arps, Slate, Meagher & Flom LLP (Jay B. Kasner, Scott D. Musoff and George A. Zimmerman of counsel), Mayer Brown LLP (Jean–Marie L. Atamian of counsel), Schulte Roth & Zabel LLP (Alan R. Glickman of counsel), Hughes Hubbard & Reed LLP (Michael Luskin and Robb W. Patryk of counsel), and Bracewell & Giuliani LLP (Rachel B. Goldman of counsel), for appellants.Kasowitz, Benson, Torres & Friedman, LLP, New York City (Marc E. Kasowitz, Daniel R. Benson, Albert S. Mishaan, Kenneth R. David, Seth A. Moskowitz and Sarmad M. Khojasteh of counsel), for respondents.Eric T. Schneiderman, Attorney General, New York City (Steven C. Wu, Barbara D. Underwood and Richard Dearing of counsel), for Superintendent of Insurance, amicus curiae.New York Civil Liberties Union Foundation, New York City (Andrew L. Kalloch and Taylor Pendergrass of counsel), for New York Civil Liberties Union and others, amici curiae.Patrick J. Borchers, Omaha, Nebraska, pro se and Arthur R. Miller, New York City, pro se, amici curiae.Simpson Thacher & Bartlett LLP, New York City (David W. Ichel, Barry R. Ostrager, Joseph M. McLaughlin, Patrick T. Shilling and Daniel J. Stujenske of counsel), for Aurelius Capital Master Ltd. and others, amici curiae.
In this dispute between MBIA Insurance Corporation (MBIA Insurance) and certain of its policyholders, the principal question presented is whether the 2009 restructuring of MBIA Insurance and its related subsidiaries and affiliates authorized by the Superintendent of the New York State Insurance Department (the Superintendent) precludes these policyholders from asserting claims against MBIA Insurance under the Debtor and Creditor Law and the common law. We hold that the Superintendent's approval of such restructuring pursuant to his authority under the Insurance Law does not bar the policyholders from bringing these claims.
This appeal has its origins in the unraveling of the world's financial markets that began in 2007. As described in the complaint, plaintiffs are a group of unrelated banking and financial services institutions that hold financial guarantee insurance policies issued by defendant MBIA Insurance on their structured-finance products. In May 2009, they commenced this action against defendants MBIA Insurance, MBIA Inc., and MBIA Insurance Corp. of Illinois (MBIA Illinois) following the Superintendent's February 2009 approval of their application for restructuring. Plaintiffs contend that the restructuring constituted a fraudulent conveyance, which left MBIA Insurance undercapitalized and unable to meet its obligations under the terms of their policies.
Prior to the restructuring, MBIA Inc., a publicly-traded Connecticut-based corporation, provided financial guarantee insurance and other forms of credit protection to its customers worldwide. It conducted this business through its wholly-owned subsidiary, MBIA Insurance, a New York-based corporation. MBIA Illinois, an essentially-dormant, Illinois-domiciled corporation, was a wholly-owned subsidiary of MBIA Insurance.
As a monoline insurer, MBIA Insurance “exclusively wrote financial guarantee insurance policies and did not offer property, casualty, life, disability or other forms of insurance.” Under the terms of its policies, MBIA Insurance promised to pay its policyholders if an obligor on a covered instrument defaulted. Historically, MBIA Insurance had underwritten policies that covered municipal bonds and other types of securities issued by governmental entities. However, in response to market trends, MBIA started offering guarantee insurance related to structured-finance products. Structured-finance products, which include mortgage-backed securities, are “obligations payable from or tied to the performance of pools of assets.” Notably, by the end of 2008, MBIA Insurance had a portfolio of policies with a face amount of $786.7 billion. Approximately one third of MBIA Insurance's portfolio consisted of structured-finance policies ($233 billion in face amount); the remaining two thirds consisted of municipal bond policies ($553.7 billion in face amount).
Beginning in 2007 and continuing through 2008, the health of the real estate market deteriorated. In turn, the risks associated with certain financial products tied to real estate, such as structured-finance products, increased concomitantly. Not surprisingly, MBIA Insurance's exposure to liability with respect to its structured-finance policy portfolio grew exponentially as the real estate market crumbled during this period.
In 2008, MBIA Inc. responded to this crisis in a number of ways. On February 25, 2008, it publicly “announc[ed] that it would establish ‘separate legal operating entities for MBIA's public, structured, and asset management businesses' within five years.” At the same time, MBIA Inc. suspended the issuance of new structured-finance guarantee policies. In May 2008, MBIA Inc. also considered infusing $900 million of its own cash into its subsidiaries “in order to ‘support MBIA Insurance['s] triple-A ratings and existing and future policyholders.’ ” Despite these efforts to curb the negative effects of the downturn in the real estate market, in early June 2008, both Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Rating Services downgraded MBIA Insurance's creditworthiness. MBIA Inc., as a result, opted not to invest its own cash into its subsidiaries, but instead decided to pursue its plan to segregate its municipal bond portfolio from its structured-finance portfolio, which it feared was turning toxic.
Under the Insurance Law, many aspects of this plan required approval or nondisapproval by the Superintendent. To that end, on December 5, 2008, MBIA Insurance, on behalf of itself and the other defendants, submitted an ex parte application to the Superintendent, detailing a series of proposed transactions that would effectuate their desired goals. MBIA Insurance supplemented and amended its application several times in the ensuing two months. Defendants requested approval of the following transactions in order to separate their two sets of portfolios. First, MBIA Insurance would declare and distribute a $1.147 billion dividend to MBIA Inc. Second, MBIA Insurance would redeem and retire roughly one third of its capital stock from MBIA Inc. and in exchange would give MBIA Inc. approximately $938 million more in cash and securities, as well as all of the issued and outstanding stock of MBIA Illinois. Third, MBIA Inc. would transfer the cash it received from the dividend distribution and the cash, securities and MBIA Illinois stock it received in connection with the stock redemption to MuniCo Holdings Inc. (MuniCo), a wholly-owned subsidiary of MBIA Inc. Fourth, MuniCo would capitalize MBIA Illinois, no longer a subsidiary of MBIA Insurance, by contributing $2.085 billion it received in these asset transfers.
Finally, following the capitalization of MBIA Illinois, MBIA Insurance further proposed that it and MBIA Illinois would enter into a series of transactions pursuant to which MBIA Illinois would “reinsure, on a cut-through basis, those financial guaranty insurance policies sold or reinsured by MBIA [Insurance].” Such an arrangement would allow the municipal bond policyholders to submit claims directly to MBIA Illinois as well as MBIA Insurance. In exchange, MBIA Insurance would remit about $3.66 billion to MBIA Illinois, most of which represented “the net unearned premium reserve ... associated with” the municipal bond policies.
By letter dated February 17, 2009, the Superintendent granted each of the approvals requested by MBIA Insurance (the Transformation). The approval letter stated that the Transformation was fair to structured-finance policyholders, noting that MBIA Insurance would “continue to pay all valid claims in a timely fashion.” No notice or opportunity to be heard was given to the policyholders.
Specifically, the Superintendent approved the proposed dividend payment made by MBIA Insurance to MBIA Inc. under Insurance Law § 4105(a), which requires a determination that MBIA Insurance would “retain sufficient surplus to support its obligations and writings.” Next, the Superintendent approved the proposed stock redemption, concluding under Insurance Law § 1411(d) that it was “reasonable and equitable.” Finally, with respect to the proposed reinsurance transaction, the Superintendent did not disapprove, concluding that it comported with statutory factors enunciated in Insurance Law §§ 1308, 1505 and 6906. In his letter, the Superintendent stressed a number of times that his approvals and nondisapprovals were based on “the representations contained in the [a]pplication [by MBIA Insurance] and its supporting submissions, and in reliance on the truth of those representations and submissions.”
Following the Superintendent's issuance of its approval/non disapproval letter, defendants consummated the Transformation, which was given retroactive effect to January 1, 2009. The very next day, MBIA Inc. publicly announced that it had succeeded in segregating its municipal bond policy portfolio from its structured-finance policy portfolio by restructuring its principal insurance subsidiary, MBIA Insurance. MBIA Inc.'s chief executive officer emphasized in a letter to shareholders that the Transformation provided the holding company “with much needed clean capacity for new municipal bond business.”
On February 18, 2009, the Superintendent issued his own public statement, announcing that he had overseen “a...
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