Dir. of Dep't of Ins. & Fin. Servs. v. Pavonia Life Ins. Co. of Mich.
| Decision Date | 25 March 2021 |
| Docket Number | No. 354182,354182 |
| Parties | DIRECTOR OF THE DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES, Petitioner-Appellee, v. PAVONIA LIFE INSURANCE COMPANY OF MICHIGAN, Respondent, and GBIG HOLDINGS, INC., Appellant, and ASPIDA HOLDCO, LLC, Appellee. |
| Court | Court of Appeal of Michigan — District of US |
If this opinion indicates that it is "FOR PUBLICATION," it is subject to revision until final publication in the Michigan Appeals Reports.
UNPUBLISHED
Ingham Circuit Court
Before: BOONSTRA, P.J., and BORRELLO and RICK, JJ.
This interlocutory appeal arises from a rehabilitation proceeding initiated by the Director (director or rehabilitator) of the Michigan Department of Insurance and Financial Services (DIFS) under Chapter 81 of the Insurance Code of 1956, MCL 500.8101, et seq. The director initiated, by consent, the underlying court-supervised rehabilitation proceedings over Pavonia Life Insurance Company of Michigan (Pavonia) to separate and disassociate Pavonia from its relationship with four financially-troubled North Carolina insurer affiliates, and the legal and financial issues generated by the actions of its "upstream owner," Greg Lindberg (Lindberg), a North Carolina resident and now convicted felon1, and his holding company, GBIG Holdings, Inc (GBIG). The rehabilitation plan explicitly incorporated a stock purchase agreement (SPA), whereby GBIG agreed to sell its stock in Pavonia to Aspida Holdco, LLC (Aspida), a Delaware holding company. GBIG appeals by leave granted2 a July 10, 2020 order entered by the Ingham Circuit Court, which granted the emergent motions of Aspida for specific performance of the SPA, and moved the closing date for the stock purchase from July 31, 2020, to "on or before July 14, 2020." The trial court advanced the closing date after finding that GBIG had taken actions that were in violation of the Rehabilitation Order and that were inconsistent with the preparations for the closing of the stock sale. GBIG also challenges the trial court's denial of its motion for reconsideration. GBIG argues that the trial court improperly decided issues delegated to the exclusive jurisdiction of New York courts and otherwise overstepped its authority.
For reasons explained below, we reverse the decision of the trial court granting specific performance, vacate the July 10, 2020 and July 14, 2020 orders memorializing the trial court's rulings, lift our stay of the trial court proceedings3, and remand this matter to the trial court for further proceedings.
A complete and detailed recitation of the facts and procedural history of this case is necessary for our resolution of the issues pending before us. Lindberg owns GBIG Holding, GBIG Capital, LLC, and Global Bankers Insurance Group, LLC. Global Bankers, also referred to as ServiceCo, is a managing company for and wholly-owned subsidiary of Pavonia, a Michigan-domiciled life insurer, and four North Carolina insurer affiliates of Pavonia. As noted, Lindberg is also the "upstream" owner of Pavonia and the four North Carolina Companies. He is the upstream owner of Pavonia because he controls GBIG, and GBIG owns Pavonia. The Commissioner of Insurance for the North Carolina Department of Insurance placed the four North Carolina insurer affiliates of Pavonia into court-supervised rehabilitation on June 27, 2019. Although Pavonia is "financially stable and ha[d] not engaged" in the activities encumbering its affiliates, the DIFS had concerns about financial risk to Pavonia because of its association with the affiliates and with Lindberg, and it therefore initiated the Michigan rehabilitation proceedings. The July 9, 2019 stipulated order initiating rehabilitation indicates that Pavonia had developed a plan to "protect its assets, policyholders, and creditors." The plan included the SPA.
Under the terms of the SPA, Aspida agreed to purchase Pavonia's issued and outstanding capital stock for $75 million, which served as the "Base Purchase Price" of Pavonia. Aspida also agreed to pay and did pay a $25 million advance to GBIG in the form of a "loan," which was secured by a pledge of the Pavonia stock that GBIG was to deliver to Aspida. The $75 million base price was to be adjusted at closing for this indebtedness of GBIG, certain costs associated with the settlement of intercompany bills, certain expense "overruns," amounts to be held in escrow, and "Banker Fees." GBIG was to provide a closing statement setting forth the adjustments. The proceeds to be paid to GBIG at closing consisted of the base price minus the various allowed adjustments. The parties to the SPA simultaneously agreed that Pavonia would be placed in court-supervised insurance rehabilitation administered by the director and DIFS.
On July 9, 2019, the director and DIFS commenced court-supervised rehabilitation proceedings in the Ingham Circuit Court. As required by MCL 500.8113(1), the trial court entered the Rehabilitation Order that appointed the director of DIFS as the rehabilitator of Pavonia. The order directed the rehabilitator to take immediate possession of all Pavonia's assets and to administer those assets under the court's supervision. MCL 500.8113(1). It vested legal title to all assets, accounts, and moneys of Pavonia in the rehabilitator. MCL 500.8113(1). In addition, the order authorized the rehabilitator to:
take such action as he or she considers necessary or appropriate to reform and revitalize the insurer including, but not limited to, the powers in section 8121(1)(f), (l), (m), (r), and (u). The rehabilitator has all the powers of the directors, officers, and managers, whose authority shall be suspended, except as they are redelegated by the rehabilitator. The rehabilitator has full power to direct and manage, to hire and discharge employees subject to any contract rights they may have, and to deal with the property and business of the insurer. [MCL 500.500.8114(2).]
Under MCL 500.8114(4) and the terms of the Rehabilitation Order, the rehabilitator was given the authority to effect changes to the plan upon determination that "reorganization, consolidation, conversion, reinsurance, merger, or other transformation of the insurer is appropriate[]" and to implement the plan upon court approval. Further, the rehabilitator was vested with "such additional powers as the Court shall grant from time to time upon petition of the rehabilitator." Finally, the order authorized the rehabilitator to "conduct receivership proceedings in accordance with the powers granted to her under Chapter 81."
The parties filed their rehabilitation plan with the trial court on August 8, 2019. That same day, the trial court gave preliminary approval to the plan at the request of the rehabilitator. The SPA is part of and fully integrated into the plan.
Objections to the preliminarily-approved rehabilitation plan were to be filed in the supervising court by October 4, 2019. Neither Lindberg nor GBIG filed an objection. In fact, when Independent Insurance Group, LLC (Independent Insurance), filed an objection and requested an opportunity to "submit a proposal for the acquisition of Pavonia," GBIG replied:
Consistent with its voluntary stipulation to these [rehabilitation] proceedings, GBIG desires a swift and efficient return of Pavonia to its normal operations (albeit under a new ultimate controlling person). Among other reasons for this desire is that delay in the confirmation of the proposed Rehabilitation Plan increases the risks to Pavonia's successful operations and to its policyholders. As previously discussed in GBIG's submissions to this [c]ourt, delay would increase the costs of estate administration (which are to be paid by Pavonia), increase the likelihood that key employees will depart for other opportunities if they believe their position to be in jeopardy, and increase execution risk on the purchase deal that has already been negotiated over many months of good faith efforts by GBIG, Aspida . . . and DIFS.
GBIG also acknowledged the fairness of the purchase price negotiated.
At a January 2020 hearing, counsel for GBIG acknowledged that "the parties are represented by sophisticated counsel, negotiated the terms of the stock purchase agreement at arm's length and then presented it to the rehabilitator." On February 24, 2020, GBIG once again argued, in response to actions by Independent Insurance, that the court should "overrule Independent's objection and immediately approve the plan of rehabilitation." The trial court denied the objection of Independent Insurance by order entered on March 9, 2020. The court stated, in part, that "there's no meaningful evidence . . . that the sale process was not fair and equitable" and "no basis on which this [c]ourt can reasonably conclude that the SPA between GBIG . . . and Aspida . . . is not fair and equitable to all parties." The trial court then directed that the matter proceed to an approval hearing on the rehabilitation plan.
On March 12, 2020, the rehabilitator issued a Form A Order Approving Acquisition of Pavonia by Aspida. On May 18, 2020, the rehabilitator moved for entry of a Final Approval Order and accompanied that motion with a proposed Final Approval Order.
The trial court scheduled the final approval hearing of the plan for May 26, 2020. Shortly before the scheduled hearing, Lindberg and GBIG objected to the "Estimated Closing Statements," which had been prepared by Pavonia's chief financial officer. GBIG averred that the ultimate amount to be received at closing by GBIG was now only $7.5 million, despite the base price of $75 million, because of "an enormous [amount] in expense overruns" and because the $25 million in loan money had been paid to "Colorado Bankers Life Insurance Co. rather than GBIG." Lindberg and GBIG threatened to invoke their contractual right to terminate the SPA unless the rehabilitator and Aspida agreed to adjourn the hearing to allow GBIG time to review the documentation supporting the figures used in the Estimated...
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