Rhode Island Depositors Economic Protection Corp. v. Brown

• Citation: 659 A.2d 95
• Decision Date: 19 May 1995
• Docket Number: Nos. 94-648-M,s. 94-648-M
• Parties: In re Advisory Opinion to the Governor (Section 42-116-40 of DEPCO Act). RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORPORATION et al. v. Wilhelmina BROWN et al., Ernst & Young et al. P., 94-668-M.P.
• Court: United States State Supreme Court of Rhode Island

Page 95

659 A.2d 95

In re Advisory Opinion to the Governor (Section 42-116-40 of DEPCO Act) RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORPORATION et al. v. Wilhelmina BROWN et al., Ernst & Young et al.

Nos. 94-648-M.P., 94-668-M.P.

Supreme Court of Rhode Island.

May 19, 1995.

Leonard Decof, John S. Foley, Howard Klein, Jeffrey Pine, Atty. Gen., Rebecca Tedford Partington, Sp. Asst. Atty. Gen., Elizabeth Murdock Myers, Providence, for plaintiffs.

Peter A. McGinn, Jerome Snider, New York City, Shelia High King, Kirsten Lacovara, George Vetter, John Bomster, John

Tarantino, Paul Izzo, Erik Lund, Laurence Field, James E. Carroll, Peabody & Arnold, Boston, MA, Gordon Cleary, Kimberly Simpson, John Bulman, Eva Mancuso, Daniel Kolb, John Matson, William P. Hammer, Jr., J. Andrew Heaton, New York City, Nicholas C. Theodorou, Boston, MA, for defendants

OPINION

SHEA, Justice.

To His Excellency Lincoln Almond, Governor of the State of Rhode Island and Providence Plantations.

We have received from Your Excellency a request for our written opinion in accordance with article 10, section 3, of the Rhode Island Constitution on the following three questions:

"1. Whether the provisions of R.I. Gen. Laws Section 42-116-40 violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution or Article I, Section 2 of the Constitution of the State of Rhode Island?

"2. Whether the provisions of R.I. Gen. Laws Section 42-116-40 violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution or Article I, Section 2 of the Constitution of the State of Rhode Island?

"3. Whether the provisions of R.I. Gen. Laws Section 42-116-40 constitute an unlawful bill of attainder in violation of Article I, Section 10 of the [United States] Constitution?"

In addition, on September 29, 1994, plaintiffs Rhode Island Depositors Economic Protection Corporation (hereinafter "DEPCO") and Edward D. Pare, Jr., in his capacity as receiver for the Brown University Employees Credit Union, filed a complaint against certain former officers and directors of the Brown University Employees Credit Union alleging that the directors' negligence in the supervision, management, and operation of the credit union caused its failure and resulted in damages to plaintiffs. On October 14, 1994, defendants filed a third-party complaint for contribution and indemnity against Ernst & Young and certain of its present and former partners. On October 14, 1994, defendants filed a motion to certify questions on the constitutionality of G.L.1956 (1993 Reenactment) § 42-116-40 (hereinafter "DEPCO Act") to this court pursuant to G.L.1956 (1985 Reenactment) § 9-24-27.

On October 17, 1994 plaintiffs filed a similar motion and on the same day filed a motion seeking the Superior Court's approval, pursuant to the DEPCO Act, of a settlement that plaintiffs and defendants had reached. Despite an objection by third-party defendant Ernst & Young, the trial justice entered an order approving the settlement as fair, reasonable, made in good faith, and in the best interests of the moving parties and the receivership estate, and certified to this court pursuant to § 9-24-27 four essentially similar questions for determination. The questions transmitted by the Governor and those certified by the trial justice differ only in that the certified questions also request this court's opinion with respect to whether the DEPCO Act constitutes a law impairing the obligation of contracts in violation of article 1, section 12, of the Rhode Island Constitution. We have consolidated these two proceedings and established a joint briefing schedule for the proponents and opponents of the constitutionality of the DEPCO Act. We are responding to the consolidated matters in the form of an opinion. Our findings shall therefore be legally binding.

Before addressing the questions presented, we feel that it is necessary to present a chronology of the facts and procedural history leading to the issues presented before this court. On January 1, 1991, former Governor Bruce Sundlun proclaimed a banking emergency and ordered the closing of the Rhode Island Share and Deposit Indemnity Corporation (hereinafter RISDIC) and the forty-five financial institutions and credit unions it insured, including Brown University Employees Credit Union. As a result of the closing of the credit unions a financial crisis ensued in which depositors were prevented from withdrawing their funds. In response to the resulting financial crisis, the Rhode Island General Assembly enacted emergency legislation establishing the Depositors Economic Protection Corporation, a public corporation obligated to repay depositors whose deposits had been frozen in the failed institutions. See G.L.1956 (1993 Reenactment) chapter 116 of title 42. DEPCO was charged with the payment of the deposit liabilities of the insolvent financial institutions, the liquidation of their assets, and the pursuit of tortfeasors who contributed to the banking crisis. In addition, DEPCO served as the receiver for RISDIC. The DEPCO legislation also created an entirely new financial institution receivership law, as well as statutory priorities for prompt payment to people whose deposits were left uninsured due to the failure of RISDIC.

In the aftermath of the shutdown of RISDIC and its insureds, the State of Rhode Island established a special commission to investigate the credit union crisis. The commission found fault with former officers and directors of the failed institutions, certain large borrowers, the State Department of Business Regulation, the General Assembly and a governor of the State of Rhode Island who held office during that time. The commission assigned a great level of blame to RISDIC and those persons who occupied prominent positions in the RISDIC hierarchy. The commission also focused on the public accounting firm of Ernst & Young, which had provided accounting services to RISDIC and to many of its insureds, as among the parties deserving special mention.

On February 20, 1992, DEPCO filed a complaint against Ernst & Young in Rhode Island Superior Court charging Ernst & Young with negligence, negligent misrepresentation, and breach of contract. The DEPCO complaint seeks damages which allegedly resulted from the failure of Ernst & Young to properly audit and report the financial condition of the failed institutions. The complaint alleges that Ernst & Young issued unqualified (or insufficiently qualified) audit opinions to RISDIC and a number of RISDIC-insured institutions despite obvious patterns of pervasive lending irregularities.

In July of 1993, well after DEPCO initiated suit against Ernst & Young, the General Assembly amended the DEPCO legislation by passing the DEPCO Act, P.L.1993, ch. 85, § 1. The DEPCO Act provides in part:

"Notwithstanding any provisions of law to the contrary, a person, corporation, or other entity who has resolved its liability to the Rhode Island Depositors' Economic Protection Corporation, the receiver of Rhode Island Share and Deposit Indemnity Corporation or the receiver of any state-chartered financial institution in a judicially-approved good faith settlement shall not be liable for claims for contribution or equitable indemnity regarding matters addressed in the settlement. Such settlement does not discharge any other joint tortfeasors unless its terms so provide, but it reduces the potential liability of such joint tortfeasors by the amount of the settlement.

"The provisions of this section shall apply solely and exclusively to settlement of liabilities to [DEPCO] * * *." Section 42-116-40.

Prior to the passage of the DEPCO Act, a non-settling defendant in a RISDIC case could, if found liable, seek contribution from all other joint tortfeasors, save only those who had entered settlements that explicitly released all claims against all potentially responsible parties for the settling tortfeasor's proportionate share of the overall liability. See G.L.1956 (1985 Reenactment) chapter 6 of title 10 (hereinafter Uniform Contribution Among Joint Tortfeasors Act). In essence, the prior contribution law ensured that, if a joint tortfeasor were held responsible for (and paid) more than its ratable share of damages, it could seek contribution from other joint tortfeasors who had not paid their proportionate share of liability. However, under the DEPCO Act a tortfeasor who refuses to settle, but is later found liable at trial, may not bring an action against a settler for contribution. Rather, that tortfeasor may only deduct the full amount of any settlements by joint tortfeasors from the judgment against it.

Two weeks following the approval of the DEPCO Act by the General Assembly, Ernst & Young filed a declaratory judgment action in the Federal District Court for the District of Rhode Island seeking to declare the DEPCO Act unconstitutional. The District Court dismissed the complaint on ripeness and abstention grounds and the First Circuit subsequently affirmed on appeal. Ernst & Young v. Depositors Economic Protection Corp., 45 F.3d 530 (1st Cir.1995).

DEPCO subsequently negotiated the settlement agreement in the Brown University Employees Credit Union case in which the trial justice certified the questions before us. The determination of the constitutionality of the DEPCO Act is the linchpin of the settlement in the underlying cause of action and all future settlements in DEPCO litigation.

I

Equal Protection

"Whether the provisions of R.I. Gen. Laws Section 42-116-40 violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution or Article I, Section 2 of the Constitution of the State of Rhode Island?"

The Fourteenth Amendment to the United States Constitution guarantees to all persons within the jurisdiction of any state "the equal protection of the laws." U.S. Const. Amend. XIV, § 1. Article 1, section 2, of the Rhode...