Garamendi v. Golden Eagle Ins. Co.

• Decision Date: 13 April 2005
• Docket Number: No. A106198.,No. A105638.,A105638.,A106198.
• Citation: 27 Cal.Rptr.3d 239,128 Cal.App.4th 452
• Parties: John GARAMENDI, as Insurance Commissioner, etc., Plaintiff and Respondent, v. GOLDEN EAGLE INSURANCE COMPANY, Defendant; Kevin Curry et al., Applicants and Appellants.
• Court: California Court of Appeals Court of Appeals

27 Cal.Rptr.3d 239

128 Cal.App.4th 452

John GARAMENDI, as Insurance Commissioner, etc., Plaintiff and Respondent, v. GOLDEN EAGLE INSURANCE COMPANY, Defendant Kevin Curry et al., Applicants and Appellants.

No. A105638.

No. A106198.

Court of Appeal, First District, Division 1.

April 13, 2005.

Review Denied July 27, 2005.

Dunk & Associates, Rick L. Bove, Andrew P.P. Dunk, III, San Diego,for Applicants and Appellants.

Orrick, Herrington & Sutcliffe LLP, Cynthia J. Larsen, Thomas J. Welsh, William T. Darden, Sacramento, for Plaintiff and Respondent.

MARGULIES, J.

These consolidated appeals seek review of a trial court decision affirming the rejection by the Insurance Commissioner (commissioner) of certain claims against defendant Golden Eagle Insurance Company (Golden Eagle), an insurance company in conservatorship. Appellants, two former employees of Golden Eagle, filed claims in the conservatorship proceedings to recover for alleged fraudulent inducement of their employment contracts, wrongful discharge, defamation, and intentional infliction of emotional distress. After investigation, the commissioner rejected the claims as factually and legally unfounded.

In an order to show cause (OSC) proceeding brought in the trial court to review the commissioner's rejections, appellants submitted a substantial quantity of evidence that had not been considered by the commissioner during the investigation of the claims. The trial court refused to consider this evidence in reviewing the validity of the commissioner's decisions, but the court offered to send the matter back to the commissioner for further consideration in light of the additional evidence. When appellants declined this opportunity, the trial court ruled that the commissioner's rejections did not constitute an abuse of discretion, based on the evidence before the commissioner at the time the determinations were made. We affirm, concluding that the trial court was correct in refusing to consider the supplemental evidence proffered by appellants.

I. BACKGROUND

In an order filed January 31, 1997, Golden Eagle was placed in conservation upon application by the commissioner pursuant to Insurance Code section 1011. Appellants Kevin Curry and George Kevin Auen are onetime employees of Golden Eagle. The day before Golden Eagle was placed in conservatorship, Curry filed a class action on behalf of Golden Eagle employees against the company and certain individual defendants, alleging causes of action for fraudulent inducement to contract and wrongful termination. Pursuant to the general terms of the conservancy order, that action has been stayed since its inception.

While working at the company, appellants independently discovered evidence of fraudulent business activities at Golden Eagle. In May 1996, approximately eight months before the commissioner seized control of Golden Eagle, counsel representing both appellants revealed their discoveries to the company and began negotiations with respect to possible remedial actions. By the time counsel contacted the company, Curry had already left Golden Eagle's employ. Auen, in contrast, did not quit his job until after the conservatorship began. The exact role of appellants' revelations in the commissioner's seizure of Golden Eagle is not clear from the record before us, but appellants appear to have played a significant part in the commissioner's investigation of the company's affairs.

As part of a plan of rehabilitation for Golden Eagle approved after its seizure, the commissioner instituted a claims procedure for creditors of the company. (See generally, Ins.Code, § 1021.) The "Proof of Claim Instructions" issued by the commissioner instructed claimants to fill out an attached one-page form containing basic information for each claim. Claimants were told, "You must also provide sufficient information and documents supporting your claim and attach them to the form." More specific instructions emphasized the importance of this submission: "Please provide a detailed explanation of your claim, and attach as many additional pages as are necessary to explain your claim in detail. You may be asked for further information before a determination is made on your claim, but there is no requirement that you be so contacted. You are therefore advised that you should describe the facts surrounding your claim in detail, and provide the calculations or documents supporting the `total amount' of your claim, because your claims may be determined based on this information alone."

Pursuant to that procedure, appellants filed timely proofs of claim on January 29, 1998, asserting claims for wrongful termination, fraudulent inducement of employment contract, defamation, and intentional infliction of emotional distress. In lieu of providing the "detailed explanation" called for by the instructions, appellants' forms noted, "See attachments." The attachments included (1) a conclusory statement of the damages claimed by each appellant; (2) a descriptive statement drafted in the form of a judicial complaint, signed by appellants' attorney, that contained joint allegations to support their claims for defamation and intentional infliction of emotional distress; (3) a few letters, some written by appellants' counsel; (4) a series of evidentiary documents relating to the underlying fraud that appellants claimed to have discovered; and (5) a copy of the class action complaint filed by Curry, the allegations of which supported their claims for wrongful termination and fraudulent inducement of employment contract. There were no personal statements by appellants.

The commissioner's investigation of appellants' claims appears to have been conducted primarily by an associate attorney of a private law firm representing the commissioner.¹ According to a declaration subsequently prepared by the attorney, his investigation encompassed, in addition to the materials submitted with appellants' claims, appellants' Golden Eagle personnel files, depositions of appellants taken as part of the commissioner's preconservatorship investigation of Golden Eagle's activities, and declarations by participants in that investigation. The attorney also spoke with appellants' counsel to obtain additional evidence and interviewed appellants' former supervisors at Golden Eagle, both of whom flatly contradicted many of appellants' contentions. A summary of these interviews was prepared for the commissioner's consideration.

On March 19, 2002, the commissioner issued boilerplate notices of rejection of appellants' claims, stating that the claims were "without legal or factual merit." The notices of rejection did not otherwise explain the bases of the rejections.²

On April 17, 2002, appellants filed in the trial court applications for an OSC why their claims should not be allowed, as directed by Insurance Code section 1032. The applications for the OSC were accompanied by a memorandum of points and authorities and a set of evidentiary materials, some of which had not been submitted to the commissioner during the claims process. At the initial hearing regarding the OSC application, the trial court noted that before a final decision could be made it was necessary to determine (1) exactly what materials the commissioner reviewed, and (2) whether it was appropriate to permit additional discovery regarding appellants' claims. The court indicated a willingness to entertain motions by appellants for further discovery. No such motions were made.

At the next hearing, on February 7, 2003, the trial court again expressed a willingness to permit additional discovery and gave the parties leave to file "whatever else you believe needs to be considered — either side needs to be considered at this hearing." Appellants subsequently filed a significant amount of additional evidence, including their own declarations and a declaration by a damages expert. Virtually none of this additional evidence had been submitted to the commissioner during the claims process.

At this point, nearly a year after appellants had applied for an OSC challenging the claims rejections, the commissioner had yet to file any type of administrative record, although his counsel had submitted a declaration that described at least some of the materials the commissioner had reviewed. On March 27, 2003, the trial court issued an order directing the commissioner to lodge with the court the materials listed in that declaration. These documents served as the administrative record before the trial court, and must serve that function here, although it is not clear that they constitute a comprehensive collection of the documents considered by the commissioner.³ The collection filled eight volumes, although with some duplication of materials.

At a further hearing before the trial court on May 2, 2003, the court indicated that it tentatively had decided to affirm the commissioner's rejections of appellants' claims. In doing so, the trial judge noted that his review of the commissioner's action was restricted to "whether Golden Eagle or the deputy trustees abused their discretion in denying this claim based on the evidence that was before them at the time that they denied the claim. There has been additional evidence that's been proffered, but apparently was not looked at by them. And in making this determination I believe I'm limited to a review of what they reviewed." Nonetheless, the trial court was "very concerned about due process in this case," in large part because the commissioner relied on an ex parte interview of Curry's supervisor, rather than on testimony taken at deposition, and on depositions of appellants that focused more on the alleged insurance fraud at Golden Eagle than on the merits of their employment-related claims.

At this hearing, the trial court again expressed a willingness to entertain a request for further discovery by appellants. Counsel for appellants declined the opportunity to obtain...