Jeffrey B. Cohen, & Idg Cos. v. State (In re Rehab. of Indem. Ins. Corp.)
| Decision Date | 09 April 2014 |
| Docket Number | Nos. 545,2013,2013.,621,s. 545 |
| Citation | 89 A.3d 65 |
| Parties | Jeffrey B. COHEN, and IDG Companies, LLC., Non–Parties Below, Appellants, v. STATE of Delaware, ex. rel. The Honorable Karen Weldin STEWART, CIR–ML, Insurance Commissioner of the State of Delaware, Petitioner–Below, Appellee, and Indemnity Insurance Corporation, RRG, Respondent Below, Appellee. In the Matter of the Rehabilitation of Indemnity Insurance Corporation, RRG. |
| Court | United States State Supreme Court of Delaware |
OPINION TEXT STARTS HERE
Court Below: Court of Chancery of the State of Delaware, C.A. No. 8601–VCL.
Upon appeal from the Court of Chancery. AFFIRMED.
Theodore A. Kittila, Esquire (argued), Greenhill Law Group, LLC, Wilmington, Delaware, for Appellants Jeffrey B. Cohen, IDG Companies, LLC, and RB Entertainment Ventures, LLC.
W. Harding Drane, Jr., Esquire (argued), and Jessica M. Willey, Esquire, of the Department of Justice, Wilmington, Delaware, for Appellee State of Delaware.
Michael W. Teichman, Esquire, Michael W. Arrington, Esquire, James D. Nutter, Esquire, Elio Battista, Jr., Esquire, Parkowski, Guerke & Swayze, P.A., Wilmington, Delaware, for Appellee Indemnity Insurance Corporation, RRG.
Before STRINE, Chief Justice, HOLLAND, BERGER, JACOBS, and RIDGELY, Justices, constituting the Court en banc.
I. INTRODUCTION
Central to this appeal, which challenges multiple orders issued by the Court of Chancery, is one issue: whether the delinquency proceedings for Indemnity Insurance Corporation, RRG (“Indemnity”) violated the constitutional due process rights of Appellant Jeffrey B. Cohen (“Cohen”) or Co–Appellant RB Entertainment Ventures (“RB Entertainment”). We conclude that no violation of those parties' due process rights occurred.
RB Entertainment is one of a complicated web of at least seventeen different companies that Cohen allegedly owns and controls (the “Cohen-affiliated entities”). Co–Appellant IDG Companies, LLC (“IDG”), Indemnity's managing general agent,1 is also one of the Cohen-affiliated entities. After uncovering evidence that Cohen had committed fraud in his capacity as Indemnity's CEO and that Indemnity might be insolvent, the Delaware Insurance Commissioner (the “Commissioner”) petitioned the Court of Chancery for a seizure order. The Delaware Uniform Insurers Liquidation Act (the “Insurers Liquidation Act”) authorizes the Commissioner to obtain a seizure order to protect the interests of policyholders and creditors and to prevent further depletion of the insurer's assets.2 Based on the detailed allegations and supporting evidence presented by the Commissioner, the Court of Chancery granted that seizure order, which, among other things, prohibited anyone with notice of the proceedings from transacting the business of Indemnity, selling or destroying Indemnity's assets, or asserting claims against Indemnity in other venues without permission from the Commissioner. The seizure order also prohibited anyone with notice of the proceedings from interfering with the Commissioner in the discharge of her duties.
Cohen, who founded Indemnity and had served as its President, Chairman, and CEO, resigned from Indemnity's board during the ensuing investigation and the board removed him from his managerial positions. After his resignation, Cohen interfered with the Commissioner's lawful efforts to operate Indemnity in various ways. As Cohen's misbehavior escalated, Indemnity and the Commissioner returned to the Court of Chancery several times, first seeking an amendment to the seizure order to address Cohen's behavior and then seeking sanctions against him. The Court of Chancery entered a series of orders that, as Cohen's ongoing disruptive actions justified, increased the restrictions on Cohen's behavior and imposed stiffer sanctions upon him.
Cohen argues that he was denied due process at several junctures during the Court of Chancery proceedings. Because Cohen's claims allege violations of his right to due process, the focus of this opinion is on whether Cohen was given notice of the allegations against him and a fair opportunity to present his side of the dispute. Having carefully examined the record in this case, we conclude that he was.
At oral argument, Cohen's counsel emphasized what he considered to be his client's strongest claim: that Cohen was not provided with a copy of the transcript from a brief hearing that, as authorized by § 5904 of the Insurers Liquidation Act, occurred ex parte on September 10, 2013. The Court of Chancery directed that the transcript be provided to Cohen by counsel for the Commissioner, but it was not. Cohen argues that the transcript contained a critical reference to criminal contempt that would have altered his approach to the case and changed his decision not to attend the hearing to show cause on September 24, 2013. Cohen claims that his absence from the September 24, 2013 hearing put him at a permanent disadvantage that tainted all subsequent sanctions proceedings.
But, Cohen was on abundant notice of the allegations against him and the transcript contained no new information that had not already been provided to Cohen by (i) Indemnity's September 9, 2013 motion, supporting exhibits, and proposed order; and (ii) the Court of Chancery's September 10, 2013 Amended Seizure Order. The Court of Chancery made it clear that a hearing would be held to give Cohen a chance to show cause why he should not be held in civil or criminal contempt. Cohen was represented by counsel at the hearing on September 24, 2013 and had a full and fair opportunity to respond to the allegations against him. Thus, after weighing the factors set out by the U.S. Supreme Court in Mathews v. Eldridge,3 we conclude that although the failure to provide the transcript was unfortunate and regrettable, it did not constitute a due process violation.
Likewise, we conclude that Cohen's due process rights were respected throughout the remainder of the Court of Chancery proceedings, and that the Court of Chancery did not abuse its discretion when it denied Cohen's motion for reargument of one of its orders. We also find that the Court of Chancery's decision not to delay the entry of a rehabilitation order that the Commissioner proposed and Indemnity's board consented to in order to protect the remaining value of the company and avoid liquidation—in response to a letter from RB Entertainment asking for time to brief a renewed motion to intervene—did not deny RB Entertainment its due process rights. The letter from RB Entertainment did not deny that serious fraud had occurred, did not proffer any evidence that Indemnity was not in the precarious financial situation that the Commissioner and Indemnity's board indicated, and made no offer to provide back-stop financing to Indemnity to ensure that no harm from the delay would befall it and its policyholders and creditors. Given the important public policy interests served by the Commissioner's proposed order and the opportunity afforded by the Court of Chancery for objections to the rehabilitation plan, RB Entertainment suffered no denial of its due process rights. Thus, we affirm the decisions of the Court of Chancery.
II. FACTUAL AND PROCEDURAL BACKGROUND
Indemnity is a Delaware-domiciled risk retention group that sells liability policies to restaurants and nightclubs, as well as insurance for special events. Indemnity insures approximately 4,100 policyholders and processes approximately 4,500 claims per year.4 Indemnity wrote over $35 million in hospitality premiums during the 2012 calendar year.5 Indemnity is subject to the regulatory authority of the Delaware Department of Insurance (the “Insurance Department”), which is charged with protecting insurance consumers, making sure that insurance companies are able to pay claims, and prosecuting insurance fraud.6
Indemnity shares its offices with at least seventeen Cohen-affiliated entities, which are intertwined, have complicated financial relationships with each other, and share employees and equipment. Before the spring of 2012, one of the Cohen-affiliated entities, IDG, performed “essentially all” of the day-to-day operations for Indemnity, including providing employees, paying for utilities, and other services.7 Then, around April 2012, Cohen changed this arrangement and transferred these operational functions, including the employees, to Indemnity, but the companies remained interrelated.8 For example, although by 2013 Indemnity was paying for at least some of the utilities itself, some accounts remained in IDG's name.9
In July 2012, the Insurance Department began a routine regulatory examination of Indemnity. From the beginning, Cohen allegedly refused to cooperate with the Insurance Department's requests for information.10 During the examination, concerns emerged about Indemnity's solvency when the Insurance Department discovered (i) a receivable to Indemnity from Cohen-controlled affiliate IDG for approximately $20 million that was likely uncollectible, (ii) an unsubstantiated representation that Indemnity was entitled to recover $983,000 of incurred insurance losses from a reinsurer, and (iii) indications that Indemnity's booked reserves were understated by between $1 million and $3 million.11 The $20 million receivable was of particular concern, because—for an insurer like Indemnity that had written $35 million in premiums in 2012—that was a material amount. The receivable existed because, over a three-year period, IDG had been collecting premiums on Indemnity's behalf but had not remitted those premiums to Indemnity.12 After reviewing IDG's financial statements, which Cohen had submitted, the Commissioner concluded that IDG was insolvent because its total assets were only $3 million while its total liabilities exceeded $24 million, and that it was unlikely that Indemnity would ever receive the money IDG owed to it. 13
In both the Petition for Entry of a Confidential Seizure and Injunction Order (the “Seizure...
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