Colo. Div. of Ins. v. Statewide Bonding, Inc.

• Court: Colorado Court of Appeals
• Writing for the Court: Opinion by JUDGE SCHUTZ
• Citation: Colo. Div. of Ins. v. Statewide Bonding, Inc., 2022 COA 67, 518 P.3d 309 (Colo. App. 2022)
• Docket Number: Court of Appeals No. 21CA0466
• Decision Date: 23 June 2022
• Parties: COLORADO DIVISION OF INSURANCE, Petitioner-Appellee, v. STATEWIDE BONDING, INC., Non-resident Insurance Producer No. 476070 and Brian Jerome Cole, Respondents-Appellants.

518 P.3d 309

2022 COA 67

COLORADO DIVISION OF INSURANCE, Petitioner-Appellee,

v.STATEWIDE BONDING, INC., Non-resident Insurance Producer No. 476070 and Brian Jerome Cole, Respondents-Appellants.

Court of Appeals No. 21CA0466

Colorado Court of Appeals, Division III.

Announced June 23, 2022

Philip J. Weiser, Attorney General, Heather Flannery, Senior Assistant Attorney General, Christopher J.L. Diedrich, Senior Assistant Attorney General, Kyle McDaniel, Assistant Attorney General, Denver, Colorado, for Petitioner-Appellee

Sheila H. Meer P.C., Sheila H. Meer, Diana R. M. Schanz, Denver, Colorado, for Respondents-Appellants

Opinion by JUDGE SCHUTZ

¶ 1 In this case involving immigration delivery bonds, respondents, Statewide Bonding, Inc. (Statewide) and Brian Jerome Cole (collectively, Respondents), appeal the final agency order issued by the Commissioner of Insurance (Commissioner).¹ The Commissioner upheld the decision of an administrative law judge (ALJ) finding that Respondents violated Colorado's insurance statutes and regulations and assessing civil penalties against them. As a matter of first impression, we conclude that the Commissioner's jurisdiction, as delegated to the employees at the Colorado Division of Insurance (Division), to investigate and regulate Colorado-licensed insurance producers that provide immigration bonds is not preempted by federal law.

¶ 2 Respondents also appeal that portion of the Commissioner's order reversing the ALJ's award of attorney fees in favor of Respondents and against the Division. We affirm in part and reverse in part.

I. Immigration Bonds

¶ 3 To better understand the issues presented on appeal, it is useful to briefly summarize the purpose and operation of immigration delivery bonds. When an undocumented immigrant has been civilly detained by Immigration and Customs Enforcement (ICE), an immigration judge has the authority to release the immigrant from custody pending the completion of the deportation proceedings. An immigration delivery bond, much like a traditional criminal bail bond, is the mechanism used to help ensure the immigrant appears at any subsequent hearings.

¶ 4 There are two ways an eligible immigrant can post the bond and be released until a hearing. See Off. of Enf't & Removal Operations, U.S. Dep't of Homeland Sec., ERO 11301.1, Bond Management Handbook 5-6 (Aug. 19, 2014). First, an immigrant bond sponsor—usually a United States citizen closely related to the immigrant—can pay the full price of the bond, in cash, directly to ICE. Alternatively, a sponsor can purchase a surety bond through an agent,² acting on behalf of an insurance company, and become a co-obligor on the bond. In these circumstances, the sponsor pays a premium—generally, a percentage of the total bond amount—to an agent. In turn, the agent becomes obligated to ensure the immigrant is present at the hearing, and if the immigrant fails to appear, the insurance company³ is obligated to pay the total amount of the bond to ICE.

¶ 5 Typically, whoever pays the bond premium for the immigrant is also required to pledge collateral to the insurance company to protect the insurance company against loss in the event the immigrant fails to appear. The collateral, which can be real or personal property, is provided to the agent posting the bond and can be executed upon by the insurance company if the immigrant does not appear.

¶ 6 With this general understanding of immigration bonds, we turn to the facts that gave rise to this dispute.

II. Background

¶ 7 In December 2017, the Division received a complaint from a Colorado state probation officer expressing concern that an undocumented immigrant under the officer's supervision was possibly being "extorted" by Libre by Nexus, Inc. (Libre), a company involved in posting the immigrant's bond. Upon receipt of the complaint, the Division began investigating the subject transaction.

A. The Investigation

¶ 8 A senior investigator (Investigator) with the Division accessed publicly available online information about Libre and searched the National Association of Insurance Commissioners website for insurance license records. The Investigator's online search revealed news articles critical of Libre for allegedly taking advantage of undocumented immigrants in ICE custody. The National Association of Insurance Commissioners website contained no information that Libre was licensed or had a certificate of authority to transact insurance business in any state.

¶ 9 The Investigator also had a copy of the immigration bond, which had been attached to the complaint. The Investigator saw that the bond had been digitally signed and posted by Cole as the obligor and agent. Statewide, the company for which Cole served as president, was listed as the "Agent-Bonding Company." At the time of posting the bond, Respondents were both licensed by the Division as nonresident insurance producers.

¶ 10 Yet unlike typical immigration bond arrangements, this bond identified an insurance company, Financial Casualty & Surety, Inc. (FCS), as the obligor. FCS was not licensed or authorized to conduct the business of insurance in Colorado. Moreover, in a separate immigration bond securitization and indemnity agreement, Libre was identified as an indemnitor on the bond. In this agreement, Libre agreed to pay the premium and provide collateral for the bond to Statewide. But instead of Libre posting collateral or paying the premium to Statewide, the undocumented immigrant contractually agreed to lease an ankle monitor from Libre. Under this contract, the immigrant agreed to pay various fees including a GPS activation fee of $460, $420 per month to lease the ankle monitor, and a daily insurance rate.

B. The Inquiry Letters and Responses

¶ 11 Upon learning this information, the Investigator sent an inquiry letter requesting Respondents to provide information related to the undocumented immigrant's bond, information regarding their relationship with FCS and Libre, and a list identifying all immigration bonds they had posted that were indemnified by FCS. Respondents answered most of the questions but objected to the requests for information related to immigration bonds it posted that FCS had agreed to indemnify, alleging that the inquiry was overbroad and unduly burdensome.

¶ 12 After receiving their responses, the Investigator sent a second inquiry letter to Respondents, focusing on their transactions in Colorado in connection with FCS and Libre. The second inquiry requested more information related to the lack of collateral, how Cole would obtain the funds to pay the bond to ICE if payment became necessary, and who would instruct the immigrant about where to appear in court. The inquiry letter also requested documentation related to all immigration bonds for which Cole acted as agent for FCS, all correspondence between Cole and FCS for such bonds, all contracts or correspondence between Libre or its principal and Cole, the identity of all states in which Cole was licensed and where Libre or its principal served as indemnitor for bonds posted by Cole, and details of every immigration bond with a Colorado connection posted by Cole and indemnified by Libre or its principal.

¶ 13 Respondents objected to most of the requests on the grounds that the Division had exceeded its authority because its investigation was preempted by federal immigration law. The Division disagreed with the objection but granted Respondents an additional opportunity to provide complete responses.

¶ 14 Instead of providing the requested information or asking for a modified inquiry, Statewide surrendered its Colorado license to act as a non-resident insurance producer on July 30, 2018. Cole subsequently surrendered his Colorado license to act as a nonresident insurance producer on August 10, 2018.

¶ 15 The Division then advised Respondents that the surrender of their licenses did not deprive the Division of its authority to enforce the state's insurance licensing laws, which included investigating allegations of wrongdoing and imposing penalties for violation of those laws. Again, the Division requested complete responses to its second inquiry letter. Respondents again rejected the Division's request, stating that because the inquiries appeared to be targeted at Libre, not Respondents, Colorado's producer licensing laws did not apply.

¶ 16 The Division then sent Respondents a formal notice that they had violated Colorado law by not providing complete responses to the Division's written inquiries and provided another opportunity for them to respond. Respondents declined to do so.

C. The Administrative Proceedings

¶ 17 On December 4, 2018, the Division filed a formal notice of charges with the Office of Administrative Courts (OAC), alleging that Respondents had failed to provide a complete and accurate response to the Division's second written inquiry. The Division sought to impose a civil penalty against each respondent plus a fifteen percent surcharge.

¶ 18 Respondents moved for summary judgment, arguing that federal immigration law preempted the Division's authority to further investigate the complaint. The ALJ denied the motion, stating that Respondents’ preemption argument "miss[ed] the point," because the real issue was whether Respondents, as Colorado licensees, were obligated to respond to the Division's inquiries about their business practices, not whether the Division had authority to regulate Respondents’ issuance of federal immigration bonds. The ALJ concluded the Division had not exceeded the scope of its regulatory authority when issuing its second inquiry letter.

D. The Division's Unasserted Claim of Privilege

¶ 19 With summary judgment denied, Respondents served the Division with requests for it to produce its entire investigative file in preparation for the hearing. The Division responded by stating that it was "producing documents relevant to the case ... up to the issuance of the second inquiry letter." That same day, the Division...