Coutu v. State, 110817 NHSUP, 2015-CV-00488

Docket Nº:2015-CV-00488
Opinion Judge:Richard B. McNamara, Presiding Justice.
Party Name:Michael Coutu v. The State of New Hampshire, Bureau of Securities Regulation
Case Date:November 08, 2017
Court:Superior Court of New Hampshire
 
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Michael Coutu

v.

The State of New Hampshire, Bureau of Securities Regulation

No. 2015-CV-00488

Superior Court of New Hampshire, Merrimack

November 8, 2017

UNPUBLISHED OPINION

ORDER

Richard B. McNamara, Presiding Justice.

The Plaintiff, Michael Coutu ("Coutu"), has brought an action against the State of New Hampshire ("the State") seeking payment pursuant to a consulting agreement ("the Agreement") he entered into with the State to perform services for the New Hampshire Bureau of Securities Regulation ("the BSR"). The case was tried without a jury. For the reasons stated in this Order, the Court finds that the State is liable to Coutu for breach of contract and Coutu is entitled to contract damages in the amount of $23, 146.26. The Court finds for Coutu on the State's counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing, as the State has introduced no evidence that Coutu breached the Agreement or the implied covenant. Moreover, Coutu is entitled to his reasonable attorney's fees, as he was forced to litigate against an opponent whose position is patently unreasonable. Within 30 days of the date of the Clerk's Notice of this Order, Coutu shall submit his fees and costs for approval. The State shall have 10 days to object. In light of this disposition, the Court does not reach Coutu's fraud claim.

I

While the facts and circumstances surrounding the execution of the Agreement between Coutu and the State are complicated, the issues in this case are not.1 This case arises from the relationship of the Local Government Center, Inc. ("LGC") and certain affiliated associations, Health Trust ("HT"), the Property Liability Trust ("PLT"), and the Workers' Compensation Trust ("WC Trust"). These three entities are pooled risk management programs. They provide services to municipalities and are alternatives to traditional, single employer insurance programs. Essentially, they function as mutual insurance companies with the net assets of each program considered the property of its respective members. Earnings and surplus of each trust are determined annually at the end of the coverage year by subtracting certain expenditures from the program's total revenue, which consists of income from investments and combined premiums paid by the program's members.

Until 2003, HT, PLT and WC Trust operated as organizations separate from each other and from LGC. Each organization had its own corporate bylaws and its own board of directors. In 2003, LGC took control of the assets of HT, PLT, and WC Trust, and sometime thereafter, LGC eliminated the separate boards that previously governed these entities. After 2003, a single board of directors governed LGC, HT, PLT and WC Trust. In effect, after the 2003 reorganization, LGC became the "parent" to its "subsidiaries, " HT, PLT, and WC Trust. In 2007, LGC merged WC Trust with PLT.

Historically, WC Trust had collected insufficient insurance premiums to cover its cost. To remedy this problem, beginning with the 2003 reorganization, LGC transferred funds from HT and PLT to WC Trust. Between 2003 and 2010, LGC transferred approximately $18.3 million from HT to WC Trust. After the BSR investigated this practice, the LGC board voted to execute a promissory note for approximately $17.1 million payable to HT, although the board made the note interest-free.

In 2011, the BSR initiated agency litigation against these entities based on the alleged failure to comply with RSA 5-B which requires that pooled risk management organizations, among other things, be governed by their own board of directors and bylaws, and "return all earnings and surplus in excess of any amounts required for administration, claims, reserves, and purchase of excess insurance to the participating political subdivisions." See RSA 5-B:5, I(b), (c), (e). In early 2012, Coutu began assisting the BSR as a consultant; first for no compensation and then as the BSR's retained expert during litigation. After litigation concluded, Coutu continued working for the BSR on a pro bono basis until the parties executed the consulting agreement ("the Agreement") on September 9, 2014.

During the litigation, the presiding officer found that the 2003 reorganization violated RSA 5-B:5 in numerous ways. To remedy the violations, the presiding officer ordered LGC to organize HT and PLT into a form that provides each program with an independent board and its own set of written bylaws. The presiding officer also ordered HT and PLT to return excess funds from 2010 to their respective political subdivision members by September 1, 2013. He further ordered PLT to satisfy the previously executed promissory note, by December 1, 2013, by transferring $17.1 million to HT, as repayment for the subsidy HT provided WC Trust over the years.

The presiding officer's lengthy order was appealed to the New Hampshire Supreme Court which affirmed in part, vacated in part, and remanded. See Appeal of Local Gov't Ctr., 165 N.H. 790 (2014). Upon remand, the parties entered into a Consent Decree, which was approved by the hearing examiner on July 25, 2014. The Consent Decree, which gave the BSR the right to an on-site liaison to ensure that the Consent Decree was complied with, provided, in relevant part: For a period of twelve (12) months from the date of this Consent Decree, the BSR shall be entitled to have a Liaison, of its own choosing, on-site at both PLT and HT's business location. The function of the Liaison will be to assess, liaise and inform the BSR director of the business operations and activities of HT and PLT. The Liaison shall perform his duties in a professional and constructive manner. The Liaison shall be entitled to reasonable access to both PLT's and HT's executive directors, chief financial officers, chief operating officers, risk pool manager in charge of rate setting, outside actuaries, and external auditors in a non-disruptive manner. The Liaison shall not engage the outside actuaries and external auditors without the participation of the CFO, in the case of the auditors, and both the CFO and the Risk Pool Administrator, in the case of the actuaries, of the applicable risk pool. . . . The purpose of the Liaison's record requests shall be to assess the current and prospective operations of the applicable risk pool.

(Pl.'s Ex. 1 [hereinafter "Consent Decree"] ¶ 9.)

Because Coutu was a recognized expert in the operation and runoff of insurance companies, the BSR sought his services to serve as the liaison. On September 9, 2014, Coutu and the BSR entered into the Agreement, which was called a "Contract for Consulting and Advisory Services" and printed on form number P-37. (See Pl.'s Ex. 2 [hereinafter...

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