State v. Altus Finance, S.A.

• Decision Date: 15 August 2005
• Docket Number: No. S119046.,S119046.
• Citation: State v. Altus Finance, S.A., 116 P.3d 1175, 32 Cal.Rptr.3d 498, 36 Cal.4th 1284 (Cal. 2005)
• Parties: STATE of California, Plaintiff and Appellant, v. ALTUS FINANCE, S.A. et al., Defendants and Respondents.
• Court: California Supreme Court

32 Cal.Rptr.3d 498

36 Cal.4th 1284

116 P.3d 1175

STATE of California, Plaintiff and Appellant, v.ALTUS FINANCE, S.A. et al., Defendants and Respondents.

No. S119046.

Supreme Court of California.

August 15, 2005.

Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, Andrea Lynn Hoch and James Humes, Chief Assistant Attorneys General, Taylor S. Carey, Acting Chief Assistant Attorney General, Christopher Ames, Assistant Attorney General, Larry G. Raskin, Randy L. Barrow and Jan Zabriskie, Deputy Attorneys General; Shartsis, Friese & Ginsburg, Arthur J. Shartsis, Mary Jo Shartsis and Charles R. Rice for Plaintiff and Appellant.

Phillips & Cohen, Eric Havian, Colette G. Matzzie; James Moorman and Amy Wilkins for Taxpayers Against Fraud as Amicus Curiae on behalf of Plaintiff and Appellant.

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Christopher Chorba, Robert S. Warren, Robert L. Weigel, Marhsall R. King and James P. Clark for Defendants and Respondents Artemis S.A., Artemis Finance S.N.C., Artemis America Partnership, Aurora S.A. and Francois Pinault.

White & Case, Travers D. Wood, C. Randolph Fishburn, Catherine A. Stone, Caroline A.H. Sayers, Richard J. Holwell, Thomas McGanney, Joseph Nocella; Cleary Gottlieb, Steen & Hamilton, Lawrence B. Friedman and Jennifer L. Kroman for Defendants and Respondents Crédit Lyonnais S.A., Consortium De Realisation S.A. and CDR Enterprises.

Skadden, Arps, Slate, Meagher & Flom, James E. Lyons, Thomas E. Stevens; Arnold & Porter, John J. Quinn and John A. Kronstadt for Defendants and Respondents Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannan, Lion Advisors, L.P., Pegasus Insurance Partners and Eric B. Siegel.

Sidley Austin Brown & Wood, Theodore N. Miller, Robert A. Holland, Joshua E. Anderson, Richard D. Bernstein, Virginia A. Seitz and Jacqueline G. Cooper for Defendants and Respondents Aurora National Life Insurance Company and New California Life Holdings, Inc.

Pillsbury Winthrop, Phillip S. Warden, John M. Grenfell, Robert L. Wallen; Foley

& Lardner, William Carlisle Herbert, Lori V. Minassian, Kathleen R. Pasulka-Brown, Susanne R. Blossom; McNitt & Loeb and Robert L. McNitt for Bank of New York, Bank of New York Corporate Trust, Chase Bank Texas, Chase Manhattan Trust Company, N.A., Wells Fargo Bank, Minnesota, N.A., National Organization of Life and Health Insurance Guaranty Associations and Structured Settlements Trade Association as Amici Curiae on behalf of Defendants and Respondents.

Horvitz & Levy, David M. Axelrad and Daniel J. Gonzalez for 21st Century Insurance Company as Amicus Curiae on behalf of Defendants and Respondents.

MORENO, J.

We granted the request of the United States Court of Appeals for the Ninth Circuit to answer two questions of law.(Cal. Rules of Court, rule 29.8.)(1) Can the Attorney General pursue civil remedies, under the California False Claims Act(CFCA)(Gov.Code, § 12650 et seq.) and the unfair competition law (UCL)(Bus. & Prof.Code, § 17200 et seq.) concerning the assets of an insolvent insurance company for which the Insurance Commissioner is acting as conservator or liquidator, or does the Insurance Code, particularly section 1037, give exclusive authority to the Insurance Commissioner to bring civil actions?(2) Do assets to which the Insurance Commissioner acquires title from an insolvent insurance company under Insurance Code section 1011 constitute "state funds" within the meaning of the CFCA?

Answering the second question first, we conclude that the Insurance Commissioner (Commissioner), as a conservator of the insolvent insurance company's assets, holds these assets in trust for private parties, primarily the insurance company's policyholders.These assets do not become "state funds" within the meaning of Government Code section 12650.The CFCA does not apply because it was intended to prevent false requests or demands that impact the public treasury.

Turning to the first question, we conclude that the Attorney General may not pursue an action under the CFCA because the assets in question are not "state funds" within the meaning of the CFCA.As to the UCL claims, as explained below, these claims must be parsed according to the type of remedies sought.The Attorney General seeks to pursue three remedies under the UCL: restitution, civil penalties, and injunctive relief.The first, restitution from the losses resulting from the allegedly fraudulent acquisition of the insolvent insurance company's assets, trespasses directly on the core function of the Commissioner as conservator of the company.We conclude the Attorney General may not, consistent with Insurance Code section 1037 subdivision (f), pursue such a remedy.In pursuing the second remedy, civil penalties based on defendants' allegedly unlawful conduct in violating state and federal statutes, the Attorney General acts primarily in his role as the state's chief law enforcement officer, seeking to punish and deter unlawful conduct.We conclude that the Attorney General may pursue such a remedy under the UCL.Third, the Attorney General seeks injunctive relief, but the object of the injunctive relief is unclear from the record.As explained below, he may pursue that relief only to the extent that it implicates core law enforcement functions rather than duplicating the role played by the Commissioner as conservator of the insolvent company.

I.STATEMENT OF FACTS

We state the facts as they appear in the Ninth Circuit's request to this court.Because the case came to the Ninth Circuit as a motion to dismiss, its statement of the facts is based on the Attorney General's pleadings.They are as follows:

More than a decade ago, Executive Life Insurance Company(ELIC), a California insurance company with approximately 300,000 insureds, became insolvent when many policyholders cashed out their policies because of concerns about ELIC's large junk bond portfolio.Pursuant to California law (seeIns.Code, § 1011), the Commissioner seized ELIC's assets on April 11, 1991, by order of the superior court and put ELIC into conservatorship.

The Commissioner adopted and implemented a two-part plan to rehabilitate ELIC.First, defendantAltus Finance, S.A.(Altus), a French company purchased the company's junk bond portfolio.Second, other French investors, the MAAF Group, formed a holding company, New California Life Holdings (NCLH), that in turn purchased ELIC's insurance business and named the new company Aurora National Life Assurance Company(Aurora).The MAAF Group owned two-thirds of NCLH.

According to the Attorney General, the corporation behind these transactions was Crédit Lyonnais, a French bank owned in part by the government of France, operating through its subsidiary, Altus.Crédit Lyonnais and affiliated companies are among the defendants here, along with American investment bankers (hereinafter the Apollo parties) and other purported coconspirators that acted as fronts for Altus.The complaint alleges that "[t]he Commissioner did not know that the MAAF Group was controlled by Altus or that Apollo would share in the profits generated by the Insurance Business or the Bonds.California law required disclosure of such an interest."Moreover, Apollo and Altus/Crédit Lyonnais knew they could not meet the announced bidding requirements because neither had any experience operating an insurance business, and state and federal law prohibited Altus from owning or operating the insurance business anyway.Apollo also knew that the Commissioner would not approve of Apollo acquiring any financial interest in the insurance business because of its bad public image as a result of its extensive connections with Drexel Burnham Lambert and Michael Milken.

The Attorney General alleges that Altus fraudulently acquired ELIC's insurance company assets from the Commissioner, in violation of state insurance and federal banking law.Insurance Code section 699.5 precludes foreign governments, agencies, or subdivisions thereof from owning, operating, or controlling, directly or indirectly, a California insurance company.The Bank Holding Company Act,12 United States Code section 1841 et seq., prohibits a foreign bank from owning an American insurance company.

Altus and its fronts purportedly made false statements denying that Crédit Lyonnais would have any equity interest in or control over the buyers.Yet after Altus secretly acquired the insurance company assets, "[u]sing a back-dated and falsified agreement, Altus sold Artemis [S.A., a French company owned in part by Crédit Lyonnais and François Pinault] the insurance business, and Apollo orchestrated the timing of formal transfers of ownership from the phony fronts to Artemis in order to avoid public scrutiny."The Attorney General's complaint states that "[h]ad the true facts been disclosed, the Commissioner could not and would not have approved the Altus/NCLH bid."

Artemis subsequently obtained the Commissioner's approval to buy shares in NCLH from the MAAF Group, using applications that did not disclose the Artemis-Altus relationship.By 1995, Artemis had acquired all of the MAAF Group's interest in NCLH and therefore controlled Aurora.

After the Commissioner discovered that the purchasers of ELIC's insurance company assets were controlled by prohibited foreign entities, he filed suit in state court on February 18, 1999, alleging fraud and seeking damages.Crédit Lyonnais removed the case to federal court.The same district court judge who decided the instant case is hearing that litigation, in which most of the defendants are also defendants here.

Also in February 1999, a qui tam plaintiff(RoNo LLC) filed a sealed whistle-blower complaint.The Attorney General intervened in the qui tam action, which was subsequently removed by defendants to federal court based on the Foreign Sovereign Immunities Act,28 United States Code sections 1330,1602 et seq., and...