Wooley v. Lucksinger
| Decision Date | 30 December 2008 |
| Docket Number | No. 2006 CA 1142.,No. 2006 CA 1140.,No. 2006 CA 1141.,2006 CA 1140.,2006 CA 1141.,2006 CA 1142. |
| Citation | 7 So.3d 660 |
| Parties | J. Robert WOOLEY, As Commissioner of Insurance for the State of Louisiana v. Thomas S. LUCKSINGER, Michael D. Nadler, Stephen J. Nazarenus, Scott Westbrook, Michael K. Jhin, William F. Galtney, John P. Mudd, Executive Risk Indemnity, Inc., Executive Risk Management Associates, Executive Risk Specialty Insurance Co., Executive Liability Underwriters and Greenwich Insurance Co., Amcareco, Inc., Amcare Management, Inc. J. Robert Wooley, Commissioner of Insurance for the State of Louisiana, in his Capacity as Liquidator of Amcare Health Plans of Louisiana v. Foundation Health Corporation, Foundation Health Systems, Inc., and Health Net, Inc. J. Robert Wooley, Commissioner of Insurance for the State of Louisiana, as Liquidator for Amcare Health Plans of Louisiana, Inc, in Receivership v. Pricewaterhousecoopers, LLP. |
| Court | Court of Appeal of Louisiana — District of US |
Before CIACCIO, LANIER and CLAIBORNE, JJ.1
This action commenced with a claim in contract by J. Robert Wooley, Commissioner of Insurance for the State of Louisiana (the Commissioner), to recover a money judgment pursuant to a suretyship contract executed by Foundation Health Corporation. For the following reasons, we amend and affirm the trial court judgment on the Louisiana contract cause of action.
Foundation Health Corporation (FHC) owned and operated Foundation Health, a Louisiana Health Plan, Inc. (FHLHP), a health maintenance plan in Louisiana. In 1996, as the sole shareholder of FHLHP, FHC executed a guaranty of sufficient capital to ensure FHLHP maintained the minimum capital and surplus requirements required by Louisiana law. The guaranty provided:
This is to certify that Foundation Health Corporation, the sole shareholder of Foundation Health, a Louisiana Health Plan, Inc. ("FHLHP"), guarantees that it shall provide sufficient capital to FHLHP to ensure that FHLHP maintains the minimum amounts of paid capital and surplus required for an HMO [health maintenance organization] under Louisiana law. This guarantee shall remain in place until Foundation Health Corporation provides written notice of its cancellation to the Commissioner of Insurance, State of Louisiana, at least sixty (60) calendars [sic] days in advance of the effective date of cancellation.
At this time, the minimum capital and surplus requirement was $2 Million.
The guaranty was signed by Jeffrey L. Elder, Chief Financial Officer, FHC. Attached to the guaranty was a California All-Purpose Acknowledgment dated December 9, 1996, wherein a California Notary Public certified Elder acknowledged that he executed the guaranty.
During 1997, FHC merged with Health Systems International and became Foundation Health Systems, Inc. On June 23, 1997, Denise Brignac, then Financial Analysis Manager for the Louisiana Department of Insurance (LaDOI), requested that FHLHP and Foundation Health Systems, Inc., agree to the following:
A parental guarantee ... executed between Foundation Health System, Inc. and Foundation Health, A Louisiana Health Plan, Inc. (Foundation Health), where Foundation Health System, Inc. guarantees Foundation Health will meet the statutory networth requirement as long as Foundation Health is a subsidiary of Foundation Health System, Inc., or until the HMO dissolves, whichever occurs first. The document must have the following wording: "non-cancelable by any party without the Commissioner's approval." (Emphasis added.)
On July 24, 1997, FHLHP responded to Ms. Brignac and rejected the proposed changes for the terms of the guaranty and its termination as follows:
Please note that a parental guarantee has been executed on behalf of the Plan. On December 9, 1996 Foundation Health Corporation issued a Guarantee which states:
This is to certify that Foundation Health Corporation [FHC], the sole shareholder of the Plan guarantees that it shall provide sufficient capital to the Plan to ensure that the Plan maintains the minimum amounts of paid capital and surplus required of an HMO under Louisiana Law. This guarantee shall remain in place until FHC provides written notice of its cancellation to the Commissioner of Insurance, State of Louisiana, at least sixty (60) calendar days in advance of the effective date of cancellation.
The Guarantee was signed by FHC's Chief Financial Officer.
At this date, no specific assets of the parent have been pledged with respect to the guarantee issued to the Plan. However, please note that Foundation Health Systems, Inc. is a large company. At [sic] March 31, 1997, the pro-forma total assets of Foundation Health Systems, Inc. were $4.1 billion, including $1.8 billion in cash and investments.
A copy of the 1996 parental guaranty was attached to the July 24, 1997 correspondence.
At this point in time, FHC had the option of retaining the definite sixty-day notice "bailout" provision that required a written notice or agreeing with LaDOI's request for a less definite provision that provided for termination based on the conditions precedent of (1) FHLHP not remaining a subsidiary of FHC, or (2) the dissolution of FHLHP, and (3) Commissioner approval. FHC consciously chose the sixty-day notice "bailout" provision. If FHC had chosen to agree to the proposed termination provision with Commissioner approval, the suretyship would have terminated only upon a sale and Commissioner approval, and this action would be without merit. It is reasonable to infer from FHC's rejection of the proposed changes that FHC determined that it was in its best interest to remain with the status quo.
In the absence of any further correspondence, we find that FHC declined the wording of the guaranty suggested by Ms. Brignac, and we find that the original guaranty executed by FHC remained in full force and effect.
After additional mergers, FHC became known as Health Net, Inc. (Health Net). In 1999, pursuant to the terms of a Stock Purchase Agreement (the sale), Health Net transferred all of the stock in the Louisiana health plan to AmCareco, Inc. (AmCareco), a corporation formed by a group of investors headed by Thomas S. Lucksinger. AmCareco was the sole shareholder of the Louisiana health plan, which became known as AmCare Health Plans of Louisiana, Inc. (AmCare-LA). Pursuant to La. R.S. 22:1004, AmCareco filed a Form-A application with LaDOI for the acquisition of AmCare-LA, which was approved by the Commissioner on April 30, 1999.
AmCare-LA was placed in rehabilitation on September 23, 2002, and, on June 30, 2003, the Commissioner filed suit against Health Net seeking enforcement of the guaranty. The Commissioner also filed two other suits against the directors and owners of AmCare-LA and others seeking tort damages for breach of fiduciary duties, deceptive acts and practices, and fraud. All three of these suits eventually were consolidated for trial.
On November 4, 2005, the trial court rendered judgment in favor of the Commissioner and against Health Net, holding Health Net contractually liable on the guaranty for the total amount of compensatory damages awarded to the Commissioner in the Louisiana action in the amount of $9,511,624.19. Health Net appealed asserting the guaranty had expired as a matter of law and was extinguished by the sale between Health Net and AmCareco. The Commissioner maintains the guaranty had neither expired nor was terminated because the required cancellation notice never was given, and, consequently, Health Net is still liable under the guaranty.
A contract of guaranty is equivalent to a contract of suretyship.3 La. R.S. 10:l-201(b)(39) currently provides, "`Surety' includes a guarantor or other secondary obligor."4 The terms guaranty and suretyship may be used interchangeably. First National Bank of Crowley v. Green Garden Processing Co., Inc., 387 So.2d 1070, 1073 (La.1980); Commercial National Bank in Shreveport v. Keene, 561 So.2d 813, 815 (La.App. 2 Cir.1990); Guaranty Bank & Trust Co. v. Jones, 489 So.2d 368, 370 (La.App. 5 Cir.1986). The provisions of the Civil Code governing the contract of suretyship must be examined in testing whether there is a continuing guaranty. Custom-Bilt Cabinet & Supply, Inc. v. Qualit Built Cabinets, Inc., 32,441, p. 5 (La.App. 2 Cir. 12/8/99), 748 So.2d 594, 599.
Suretyship must be express and in writing. La. C.C. art. 3038. Suretyship cannot be presumed. An agreement to become a surety must be expressed clearly and must be construed within the limits intended by the parties to the agreement. Placid Refining Co. v. Privette, 523 So.2d 865, 867 (La.App. 1 Cir.), writ denied, 524 So.2d 748 (La.1988). Contracts of guaranty or suretyship are subject to the same rules of interpretation as contracts in general. Ferrell v. South Central Bell Telephone Co., 403 So.2d 698, 700 (La.1981); Eclipse Telecommunications Inc. v. Telnet Intern. Corp., 2001-0271, p. 4 (La.App. 5 Cir. 10/17/01), 800 So.2d 1009, 1011.
Contracts have the effect of law on the parties and must be performed in good faith. La. C.C. art. 1983. Interpretation of a contract is the determination of the common intent of the parties. La. C.C. art. 2045. The intent is to be determined by the words of the contract when they are clear, explicit and lead to no absurd consequences. La. C.C. art. 2046. When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the intent of the parties, and the contract is interpreted by the court as a matter of law. La. C.C. art. 2046; Carter v. BRMAP, 591 So.2d 1184, 1187-88 (La. App. 1 Cir.1991).
Each provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole. La. C.C. art. 2050. When a contract is clear and unambiguous, the meaning and...
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