Fin. Consulting, LLC v. Comm'r of Ins.

• Decision Date: 30 December 2014
• Docket Number: SC 19070
• Court: Supreme Court of Connecticut
• Parties: FINANCIAL CONSULTING, LLC, ET AL. v. COMMISSIONER OF INSURANCE

FINANCIAL CONSULTING, LLC, ET AL. v. COMMISSIONER OF INSURANCE

SC 19070

Supreme Court of Connecticut

Argued January 10, 2014

December 30, 2014

Rogers, C. J., and Palmer, Zarella, Eveleigh, McDonald, Espinosa and Robinson, Js.

Andrew J. O'Keefe, with whom, on the brief, was Joseph M. Busher, Jr., for the appellants (plaintiffs).

Patrick T. Ring, assistant attorney general, with whom, on the brief, was George Jepsen, attorney general, for the appellee (defendant).

Opinion

ROBINSON, J. The principal issue in this appeal is whether the exhaustion doctrine precludes a party from bringing a declaratory judgment action pursuant to the Uniform Administrative Procedure Act (UAPA); see General Statutes § 4-175;¹ addressing matters that are the subject of an administrative agency's pending investigation of that party, prior to the commencement of a contested case hearing in accordance with General Statutes § 4-177.² The plaintiffs, Financial Consulting, LLC (Financial), Carl Reidemeister, Thomas M. Bonelli, Thomas Moore, Jr., and Sean Wallace,³ appeal⁴ from the judgment of the trial court dismissing their declaratory judgment action against the defendant, Thomas Leonardi, the Commissioner of Insurance (commissioner). On appeal, the plaintiffs claim that the trial court improperly concluded that: (1) they failed to exhaust their administrative remedies before bringing this declaratory judgment action pursuant to § 4-175, despite the fact that they had complied with that statute's precondition of requesting a declaratory ruling from the commissioner in accordance with General Statutes § 4-176;⁵ and (2) they failed to establish their standing to bring this declaratory judgment action. We conclude that the trial court had subject matter jurisdiction over this declaratory judgment action because the plaintiffs complied with the precondition to § 4-175 set forth in § 4-176, and that the issuance of "second chance notices" to the plaintiffs by the Department of Insurance (department) pursuant to General Statutes (Supp. 2014) § 4-182 (c)⁶ did not, in the absence of a contested case hearing instituted under § 4-177, operate to commence agency proceedings under which they would have administrative remedies to exhaust. We further agree with the plaintiffs' argument that the trial court improperly determined that they were not aggrieved parties with standing to bring this declaratory judgment action.⁷Accordingly, we reverse the judgment of the trial court.

The record reveals the following undisputed facts and procedural history.⁸ The plaintiffs are insurance producers who conduct business within the state of Connecticut and are licensees of the department. In September, 2009, the Illinois Mutual Life Insurance Company (Illinois Mutual) notified the department that it was terminating the appointment of the plaintiffs as its agents, for cause arising from the plaintiffs' alleged misconduct while selling life insurance policies to military personnel. After reviewing information submitted by Illinois Mutual, the department, pursuant to its authority under General Statutes § 38a-16 (a), began to investigate the plaintiffs to determine whether they had violated any of Connecticut's insurance laws in connection with those sales. During the course of the investigation, from January, 2011, through June, 2011, the department issued "second chance" notices, pursuantto § 4-182 (c), to each of the plaintiffs, informing them of the allegations and offering them an opportunity to show their compliance with the law in order to retain their licenses.⁹ Subsequently, on September 12, 2011, Reidemeister attended a conference with the department at which he attempted to show compliance with the insurance statutes and regulations. The department's investigation remains ongoing and it continues to collect information in order to determine whether it will bring administrative charges against the plaintiffs.¹⁰

After the department's issuance of the § 4-182 (c) notices to the plaintiffs, but before its conference with Reidemeister, the plaintiffs petitioned the commissioner on or about July 1, 2011, pursuant to § 4-176, seeking declaratory rulings with respect to seven questions concerning the legality of their conduct in the sale of life insurance policies.¹¹ The plaintiffs averred that these seven questions pertained to a "determination of regulations or applicability of statutes or regulations which threatened application interferes with, or impairs, or threatens to interfere with or impair the legal rights or privileges of the plaintiffs." The department received the petition by certified mail on July 5, 2011. The commissioner subsequently took no action on the petition.

After sixty days elapsed, the plaintiffs brought this action pursuant to § 4-175, seeking a declaratory judgment resolving seven questions similar to those posed to the department in their request for a declaratory ruling.¹² The plaintiffs also sought injunctive relief should the trial court, "determine that the [department's] proposed or threatened application or interpretation of [§§ 38a-819-70 through 38a-819-75 of the Regulations of Connecticut State Agencies] and [General Statutes] § 38a-816 (8) exceeds the department's jurisdiction or authority . . . ." Subsequently, the commissioner moved to dismiss this declaratory judgment action, claiming that the trial court lacked subject matter jurisdiction because the plaintiffs had failed to: (1) exhaust their administrative remedies prior to bringing this action; and (2) plead facts sufficient to establish their standing.

The trial court granted the commissioner's motion to dismiss. With respect to exhaustion, the trial court relied on Tele Tech of Connecticut Corp. v. Dept. of Public Utility Control, 270 Conn. 778, 855 A.2d 174 (2004), and concluded that the department's investigation of the plaintiffs constituted an "agency proceeding" under the UAPA, and that the plaintiffs had available to them administrative remedies should the department ultimately take adverse action against their insurance licenses. The trial court then relied on River Bend Associates, Inc. v. Water Pollution Control Authority, 262 Conn. 84, 809 A.2d 492 (2002), and rejected the plaintiffs' claim that §§ 4-175 and 4-176 authorized them to usethe declaratory judgment procedure to bypass the department's pending administrative process. Accordingly, the trial court concluded that it lacked subject matter jurisdiction because the plaintiffs had failed to exhaust their administrative remedies. After agreeing with the commissioner's additional jurisdictional argument that the plaintiffs lacked standing to maintain this declaratory judgment action,¹³ the trial court granted the motion to dismiss and rendered judgment accordingly. This appeal followed.

On appeal, the plaintiffs contend that the trial court improperly concluded that: (1) they had failed to exhaust their administrative remedies; and (2) they lacked standing to bring this declaratory judgment action. We address each claim in turn.

I

We begin with the plaintiffs' claim that the trial court improperly concluded that they had failed to exhaust their administrative remedies prior to filing this declaratory judgment action pursuant to § 4-175. Relying on Republican Party of Connecticut v. Merrill, 307 Conn. 470, 55 A.3d 251 (2012), the plaintiffs argue that the plain language of § 4-175 does not impose any exhaustion requirement beyond first seeking a declaratory ruling from the administrative agency pursuant to § 4-176, a requirement with which they had complied. The plaintiffs argue that the trial court improperly imported a nonexistent exhaustion requirement into the text of § 4-175, which contravened the purpose of that statute by requiring them to risk their licenses by "proceed[ing] in their business without knowing the answer to . . . vitally important questions" about the application of the governing statutes and regulations to their factual circumstances. The plaintiffs emphasize that they "do not have an available administrative remedy" for obtaining relief from the cloud over their business and licenses posed by the department's pending investigation. The plaintiffs further argue that the trial court improperly relied on River Bend Associates, Inc. v. Water Pollution Control Authority, supra, 262 Conn. 84, because that case is distinguishable both factually, given that the application of the regulatory scheme in the present case threatens their ability to sell insurance to military personnel, and legally, because it does not involve §§ 4-175 and 4-176.

In response, the commissioner argues that, "[w]hen an administrative agency has initiated an agency proceeding by issuing a notice to a licensee pursuant to [§ 4-182 (c)], the licensee should not be permitted to use [§ 4-175 or § 4-176] to obtain declaratory relief on the very matters that are the subject of the agency's investigation." The commissioner contends that the trial court properly determined that, under this court's decision in Tele Tech of Connecticut Corp. v. Dept. of Public Utility Control, supra, 270 Conn. 778, thedepartment's issuance of "second chance" notices under § 4-182 (c) during its investigation commenced an "agency proceeding," which thus required the plaintiffs to exhaust their administrative remedies in that pending proceeding before going to court. The commissioner emphasizes that the department's ongoing investigation involves the plaintiffs' past conduct, and that the resolution of that investigation will obviate the need for this declaratory judgment action insofar as the department will either: (1) find no violation and take no action against the plaintiffs, rendering any further proceedings moot; or (2) issue a disciplinary complaint against the plaintiffs seeking fines or license suspension, which would result in an administrative proceeding with a fully developed record subject to judicial review under the administrative...