Ted Nickel & Office of the Comm'r of Ins. v. Wells Fargo Bank/Trustee of Bondholders, Bank of N.Y. Mellon & Deutsche Bank Nat'l Trust Co. (In re Rehab. of Segregated Account of Ambac Assurance Corp.)

• Decision Date: 24 October 2013
• Docket Number: 2011AP561.,Nos. 2010AP1291,2010AP2835,2010AP2022,s. 2010AP1291
• Citation: 841 N.W.2d 482,2013 WI App 129,351 Wis.2d 539
• Parties: In the Matter of the Rehabilitation of Segregated Account of AMBAC ASSURANCE CORPORATION. Ted Nickel and Office of the Commissioner of Insurance, Plaintiffs–Respondents, Ambac Assurance, Interested Party–Respondent, v. Wells Fargo Bank/Trustee of Bondholders, Bank of New York Mellon and Deutsche Bank National Trust Company, Defendants, Federal Home Loan Mortgage Corporation, DefendantPetitioner–Co–Appellant, Aurelius Capital Management LP, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP and Stonehill Capital Management LLC, Defendants–Petitioners–Appellants, Eaton Vance Management, Nuveen Asset Management, Restoration Capital Management LLC and Stone Lion Capital Partners LP, Defendants–Co–Appellants–Petitioners.<SUP>†</SUP> In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation. Ted Nickel and Office of the Commissioner of Insurance, Plaintiffs–Respondents, Ambac Assurance, Interested Party–Respondent, v. Wells Fargo Bank/Trustee of Bondholders, Defendant–Co–Appellant,<SUP>†</SUP> Bank of New York Mellon, Deutsche Bank National Trust Company, Federal Home Loan Mortgage Corporation, Aurelius Capital Management LP, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP, Nuveen Asset Management, Restoration Capital Management LLC, Stone Lion Capital Partners LP and Stonehill Capital Management LLC, Defendants,<SUP>†</SUP> Eaton Vance Management, Defendant–Appellant.<SUP>†</SUP> In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation. Ted Nickel and Office of the Commissioner of Insurance, Petitioners–Respondents, Ambac Assurance, Interested Party–Respondent, One State Street LLC, Interested Party–Appellant, Access to Loans for Learning Student Loan Corporation, Aurelius Capital Management LP, Bank of New York Management LP, Bank of New York Mellon, Customer Asset Protection Company (“CAPCO”), Depfa Bank, PLC, Deutsche Bank National Trust Company, Eaton Vance Management, Federal Home Loan Mortgage Corporation, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Lloyds TSB Bank PLC, Monarch Alternative Capital LP, Nuveen Asset Management, Restoration Capital Management LLC, Stone Lion Capital Partners LP, Stonehill Capital Management LLC, Wells Fargo Bank/Trustee of Bondholders, Wilmington Trust Company and Wilmington Trust FSB, Interested Parties.<SUP>†</SUP> In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation. Ted Nickel and Office of the Commissioner of Insurance, Petitioners–Respondents, Ambac Assurance, Interested Party–Respondent, Aurelius Capital Management LP, Bank of America, N.A., Customer Asset Protection Company (“CAPCO”), Deutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, Eaton Vance, Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP, Stonehill Capital Management LLC, U.S. Bank National Association, Wells Fargo Bank, N.A., Wells Fargo Bank, N.A. as Trustee for the LVM Bondholders, Wilmington Trust Company, Wilmington Trust FSB, Interested Parties–Appellants,<SUP>†</SUP> Access to Loans for Learning Student Loan Corporation, Assured Guaranty Corporation, Bank of New York Mellon, Countrywide Home Loans Servicing L.P., Depfa Bank, PLC, Goldman Sachs & Co., Inc., HSBC Bank USA, National Association, Knowledgeworks Foundation, Lloyds TSB Bank PLC, One State Street LLC, Nuveen Asset Management, PNC Bank, Restoration Capital Management LLC, Stone Lion Capital Partners LP and Treasurer of the State of Ohio, United States of America, Interested Parties.
• Court: Wisconsin Court of Appeals

351 Wis.2d 539

841 N.W.2d 482

2013 WI App 129

In the Matter of the Rehabilitation of Segregated Account of AMBAC ASSURANCE CORPORATION.

Ted Nickel and Office of the Commissioner of Insurance, Plaintiffs–Respondents,

Ambac Assurance, Interested Party–Respondent,

v.Wells Fargo Bank/Trustee of Bondholders, Bank of New York Mellon and Deutsche Bank National Trust Company, Defendants,^†Federal Home Loan Mortgage Corporation, DefendantPetitioner–Co–Appellant,Aurelius Capital Management LP, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP and Stonehill Capital Management LLC, Defendants–Petitioners–Appellants,Eaton Vance Management, Nuveen Asset Management, Restoration Capital Management LLC and Stone Lion Capital Partners LP, Defendants–Co–Appellants–Petitioners.^†

In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation.

Ted Nickel and Office of the Commissioner of Insurance, Plaintiffs–Respondents,

Ambac Assurance, Interested Party–Respondent,

v.Wells Fargo Bank/Trustee of Bondholders, Defendant–Co–Appellant,^†

Bank of New York Mellon, Deutsche Bank National Trust Company, Federal Home Loan Mortgage Corporation, Aurelius Capital Management LP, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP, Nuveen Asset Management, Restoration Capital Management LLC, Stone Lion Capital Partners LP and Stonehill Capital Management LLC, Defendants,^†

Eaton Vance Management, Defendant–Appellant.^†

In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation.

Ted Nickel and Office of the Commissioner of Insurance, Petitioners–Respondents,

Ambac Assurance, Interested Party–Respondent,

One State Street LLC, Interested Party–Appellant,

Access to Loans for Learning Student Loan Corporation, Aurelius Capital Management LP, Bank of New York Management LP, Bank of New York Mellon, Customer Asset Protection Company (“CAPCO”), Depfa Bank, PLC, Deutsche Bank National Trust Company, Eaton Vance Management, Federal Home Loan Mortgage Corporation, Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Lloyds TSB Bank PLC, Monarch Alternative Capital LP, Nuveen Asset Management, Restoration Capital Management LLC, Stone Lion Capital Partners LP, Stonehill Capital Management LLC, Wells Fargo Bank/Trustee of Bondholders, Wilmington Trust Company and Wilmington Trust FSB, Interested Parties.^†

In the Matter of the Rehabilitation of Segregated Account of Ambac Assurance Corporation.

Ted Nickel and Office of the Commissioner of Insurance, Petitioners–Respondents,

Ambac Assurance, Interested Party–Respondent,

Aurelius Capital Management LP, Bank of America, N.A., Customer Asset Protection Company (“CAPCO”), Deutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, Eaton Vance, Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal National Mortgage Association (“Fannie Mae”), Fir Tree Inc., King Street Capital Master Fund, Ltd., King Street Capital, L.P., Monarch Alternative Capital LP, Stonehill Capital Management LLC, U.S. Bank National Association, Wells Fargo Bank, N.A., Wells Fargo Bank, N.A. as Trustee for the LVM Bondholders, Wilmington Trust Company, Wilmington Trust FSB, Interested Parties–Appellants,^†

Access to Loans for Learning Student Loan Corporation, Assured Guaranty Corporation, Bank of New York Mellon, Countrywide Home Loans Servicing L.P., Depfa Bank, PLC, Goldman Sachs & Co., Inc., HSBC Bank USA, National Association, Knowledgeworks Foundation, Lloyds TSB Bank PLC, One State Street LLC, Nuveen Asset Management, PNC Bank, Restoration Capital Management LLC, Stone Lion Capital Partners LP and Treasurer of the State of Ohio, United States of America, Interested Parties.

Nos. 2010AP1291, 2010AP2022, 2010AP2835, 2011AP561.

Court of Appeals of Wisconsin.

Submitted on Briefs Feb. 17, 2011 and Dec. 8, 2011.

Opinion Filed Oct. 24, 2013.

Appeals from orders of the circuit court for Dane County: William D. Johnston,¹ Judge. Orders affirmed.

On behalf of the appellants and co-appellants, the cause was submitted on the briefs of Bryan K. Nowicki, R. Timothy Muth and Jessica Hutson Polakowski of Reinhart Boerner Van Deuren s.c., Madison; Michael T. Brody, David M. Greenwald, Andrew J. Olejnik and John B. Simon of Jenner & Block LLP, Chicago, IL, and Patrick J. Trostle of Jenner & Block LLP, New York, NY, of counsel; Noreen J. Parrett and Connie L. O'Connell of Parrett & O'Connell, LLP, Madison; Philip Bentley, Amy Caton and Susan Jacquemot of Kramer Levin Naftalis & Frankel LLP, New York, NY, of counsel; Thomas Armstrong, David L. Cisar and Christopher J. Stroebel of von Briesen & Roper, s.c., Milwaukee; Craig S. Bloomgarden of Manatt, Phelps & Phillips, LLP, Los Angeles, CA, and Marcia D. Alazraki of Manatt, Phelps & Phillips, LLP, New York, NY, of counsel; Seth E. Dizard, Grant C. Killoran, Gregory W. Lyons and Laura J. Now of O'Neil, Cannon, Hollman, DeJong & Laing S.C. of Milwaukee; Thomas J. Welsh of Orrick, Herrington & Sutcliffe LLP, Sacramento, CA, of counsel admitted pro hac vice; John Franke and Beth Ermatinger Hanan of Gass Weber Mullins LLC, Milwaukee; Paul E. Benson, Paul A. Lucey and Nathan L. Moenck of Michael Best & Friedrich LLP, Milwaukee; Kristine Bailey and John M. Rosenthal of Morgan, Lewis & Bockius LLP, San Francisco, CA, and Allyson N. Ho of Morgan, Lewis & Bockius LLP, of Houston, TX, admitted pro hac vice; Jeffrey O. Davis and Gregory T. Everts of Quarles & Brady LLP, Madison; Kenneth M. Argentieri, Jeffrey W. Spear and Joel M. Walker of Duane Morris LLP, Pittsburgh, PA, of counsel admitted pro hoc vice; Jennifer M. Krueger and Stephen L. Morgan of Murphy Desmond S.C., Madison; Steven T. Whitmer and Kevin A. Wisniewski of Locke Lord Bissell & Liddell LLP, Chicago, IL, of counsel; Jane C. Schlicht of Cook & Franke, S.C., Milwaukee; Michael E. Johnson of Alston & Bird LLP, New York, NY, of counsel pro hac vice; Lawrence Bensky of Law Office of Lawrence Bensky, LLC, Madison; and James C. Owen of McCarthy, Leonard & Kaemmerer, L.C., Chesterfield, MO, pro hac vice.

On behalf of the respondents, the cause was submitted on the briefs of Matthew R. Lynch, Naikang Tsao and Michael B. Van Sicklen of Foley & Lardner LLP, Madison; Barbara A. Neider and Daniel W. Stolper of Stafford Rosenbaum LLP, Madison; and Peter A. Ivanick, William C. Primps, Richard W. Reinthaler, Henry J. Ricardo and Emily L. Staffitz of Dewey & Leboeuf LLP, New York, NY, of counsel.

Before HIGGINBOTHAM, SHERMAN and REILLY, JJ.

HIGGINBOTHAM, J.

¶ 1 These are appeals of a circuit court order approving a rehabilitation plan of the segregated account of Ambac Assurance Corporation (Ambac) and other court orders entered earlier in this proceeding.² Numerous interested parties challenge the validity of various provisions of the rehabilitation plan on various grounds as well as actions taken by the Office of the Commissioner of Insurance (commissioner) in relation to the formulation of the plan with the approval of the circuit court The interested parties also challenge various court orders relating to numerous matters, including the approval of a proposed hearing schedule, the establishment of a segregated account, the issuance of injunctive relief, and the refusal to enjoin a settlement agreement between Ambac and a group of financial institutions. For the reasons that follow, we conclude that the circuit court properly exercised its discretion in confirming the rehabilitation plan and in entering the other orders that the interested parties challenge on appeal. Accordingly, we affirm.

BACKGROUND

¶ 2 Ambac, a Wisconsin insurance company with headquarters in New York, is one of the largest insurers of financial guarantees in the world. Ambac is a wholly-owned subsidiary of Ambac Financial Group Inc., a holding company headquartered in New York City.

¶ 3 Beginning in late 2007, Ambac's books of business began to suffer due to mounting liabilities, dwindling claims-paying resources, and plummeting credit ratings. As a result of these financial challenges, Ambac stopped writing new insurance policies in mid–2008.

¶ 4 Also beginning in late 2007, the commissioner increased its oversight of Ambac and retained financial, legal, and insurance industry experts to monitor Ambac's financial condition. Ambac's financial condition continued to worsen over the next two years and by early 2010 it became apparent that the commissioner needed to take formal regulatory action to save Ambac from insolvency.

¶ 5 The commissioner proceeded by establishing a segregated account for Ambac's greatest liabilities. Working closely with insurance industry experts, the commissioner identified approximately 1000 out of 15,000 Ambac policies that imperiled Ambac's financial stability and assigned those policies to the segregated account. The commissioner decided against pursuing a full rehabilitation or liquidation of Ambac's business and instead decided on a targeted partial rehabilitation pertaining only to the segregated account. Pursuing a targeted partial rehabilitation, according to the commissioner, was necessary to prevent the triggering of acceleration and early termination provisions under the contracts governing certain financial transactions, which would have caused massive financial losses that would have jeopardized the company.

¶ 6 On March 24, 2010, the commissioner submitted a verified petition for the rehabilitation of the segregated account in Dane County Circuit Court. The court entered an order for rehabilitation, appointed the commissioner as rehabilitator, and directed that the commissioner proceed in accordance with the plan of operation for the segregated account. The court also granted the commissioner's request for a temporary injunction, which, in relevant part, enjoined any persons or entities from commencing or prosecuting claims related...