Case Title: ABN AMRO Bank, N.V., et al. v. MBIA Inc., et al.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2011-06-28T00:00:00Z

Document:
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 124  
ABN AMRO Bank, N.V. et al.,    
            Appellants,
Barclays Bank PLC, et al.
            Plaintiffs,
        v.
MBIA Inc., et al.,
            Respondents.
Robert J. Giuffra, Jr., for appellants.
Marc E. Kasowitz, for respondents.
Superintendent of Insurance; New York Civil Liberties
Union et al.; Patrick J. Borchers et al.; Aurelius Capital Master
Ltd. et al., amici curiae.
CIPARICK, J.:
In this dispute between MBIA Insurance Corporation
(MBIA Insurance) and certain of its policyholders, the principal
question presented is whether the 2009 restructuring of MBIA
Insurance and its related subsidiaries and affiliates authorized
by the Superintendent of the New York State Insurance Department
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No. 124
(the Superintendent) precludes these policyholders from asserting
claims against MBIA Insurance under the Debtor and Creditor Law
and the common law.  We hold that the Superintendent's approval
of such restructuring pursuant to its authority under the
Insurance Law does not bar the policyholders from bringing these
claims.
I.
This appeal has its origins in the unraveling of the
world's financial markets that began in 2007.  As described in
the complaint, plaintiffs are a group of unrelated banking and
financial services institutions that hold financial guarantee
insurance policies issued by defendant MBIA Insurance on their
structured-finance products.  In May 2009, they commenced this
action against defendants MBIA Insurance, MBIA Inc., and MBIA
Insurance Corp. of Illinois (MBIA Illinois) following the
Superintendent's February 2009 approval of their application for
restructuring.  Plaintiffs contend that the restructuring
constituted a fraudulent conveyance, which left MBIA Insurance
undercapitalized and unable to meet its obligations under the
terms of their policies.     
Prior to the restructuring, MBIA Inc., a publicly
traded Connecticut based corporation, provided financial
guarantee insurance and other forms of credit protection to its
customers worldwide.  It conducted this business through its
wholly-owned subsidiary, MBIA Insurance, a New York based
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corporation.  MBIA Illinois, an essentially dormant, Illinois-
domiciled corporation, was a wholly-owned subsidiary of MBIA
Insurance.  
As a monoline insurer, MBIA Insurance "exclusively
wrote financial guarantee insurance policies and did not offer
property, casualty, life, disability or other forms of
insurance."  Under the terms of its policies, MBIA Insurance
promised to pay its policyholders if an obligor on a covered
instrument defaulted.  Historically, MBIA Insurance had
underwritten policies that covered municipal bonds and other
types of securities issued by governmental entities.  However, in
response to market trends, MBIA started offering guarantee
insurance related to structured-finance products.  Structured-
finance products, which include mortgage-backed securities, are
"obligations payable from or tied to the performance of pools of
assets."  Notably, by the end of 2008, MBIA Insurance had a
portfolio of policies with a face amount of $786.7 billion. 
Approximately one-third of MBIA Insurance's portfolio consisted
of structured-finance policies ($233 billion in face amount); the
remaining two-thirds consisted of municipal bond policies ($553.7
billion in face amount).  
Beginning in 2007 and continuing through 2008, the
health of the real estate market deteriorated.  In turn, the
risks associated with certain financial products tied to real
estate, such as structured-finance products, increased
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concomitantly.  Not surprisingly, MBIA Insurance's exposure to
liability with respect to its structured-finance policy portfolio
grew exponentially as the real estate market crumbled during this
period.  
In 2008, MBIA Inc. responded to this crisis in a number
of ways.  On February 25, 2008, it publicly "announc[ed] that it
would establish 'separate legal operating entities for MBIA's
public, structured, and asset management businesses' within five
years."  At the same time, MBIA Inc. suspended the issuance of
new structured-finance guaranty policies.  In May 2008, MBIA Inc.
also considered infusing $900 million of its own cash into its
subsidiaries "in order to 'support MBIA Insurance['s] triple-A
ratings and existing and future policyholders.'"  Despite these
efforts to curb the negative effects of the downturn in the real
estate market, in early June 2008, both Moody's Investors
Service, Inc. (Moody's) and Standard & Poor's Rating Services
downgraded MBIA Insurance's credit worthiness.  MBIA Inc., as a
result, opted not to invest its own cash into its subsidiaries,
but instead decided to pursue its plan to segregate its municipal
bond portfolio from its structured-finance portfolio, which it
feared was turning toxic.  
Under the Insurance Law, many aspects of this plan
required approval or non-disapproval by the Superintendent.  To
that end, on December 5, 2008, MBIA Insurance, on behalf of
itself and the other defendants, submitted an ex parte
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application to the Superintendent, detailing a series of proposed
transactions that would effectuate their desired goals.  MBIA
Insurance supplemented and amended its application several times
in the ensuing two months.  Defendants requested approval of the
following transactions in order to separate their two sets of
portfolios.  First, MBIA Insurance would declare and distribute a
$1.147 billion dividend to MBIA Inc.  Second, MBIA Insurance
would redeem and retire roughly one-third of its capital stock
from MBIA Inc. and in exchange would give MBIA Inc. approximately
$938 million more in cash and securities, as well as all of the
issued and outstanding stock of MBIA Illinois.  Third, MBIA Inc.
would transfer the cash it received from the dividend
distribution and the cash, securities and MBIA Illinois stock it
received in connection with the stock redemption to MuniCo
Holdings Inc. (MuniCo), a wholly-owned subsidiary of MBIA Inc. 
Fourth, MuniCo would capitalize MBIA Illinois, no longer a
subsidiary of MBIA Insurance, by contributing $2.085 billion it
received in these asset transfers.     
Finally, following the capitalization of MBIA Illinois,
MBIA Insurance further proposed that it and MBIA Illinois would
enter into a series of transactions pursuant to which MBIA
Illinois would "reinsure, on a cut-through basis, those financial
guaranty insurance policies sold or reinsured by MBIA
[Insurance]."  Such an arrangement would allow the municipal bond
policyholders to submit claims directly to MBIA Illinois as well
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as MBIA Insurance.  In exchange, MBIA Insurance would remit about
$3.66 billion to MBIA Illinois, most of which represented "the
net unearned premium reserve . . . associated with" the municipal
bond policies. 
By letter dated February 17, 2009, the Superintendent
granted each of the approvals requested by MBIA Insurance (the
Transformation).  The approval letter stated that the
Transformation was fair to structured-finance policyholders,
noting that MBIA Insurance would "continue to pay all valid
claims in a timely fashion."  No notice nor opportunity to be
heard was given to the policyholders. 
Specifically, the Superintendent approved the proposed
dividend payment made by MBIA Insurance to MBIA Inc. under
Insurance Law § 4105, which requires a determination that MBIA
Insurance would "retain sufficient surplus to support its
obligations and writings."  Next, the Superintendent approved the
proposed stock redemption, concluding under Insurance Law § 1411
that it was "reasonable and equitable."  Finally, with respect to
the proposed reinsurance transaction, the Superintendent did not
disapprove, concluding that it comported with statutory factors
enunciated in Insurance Law §§ 1308, 1505, and 6906.  In his
letter, the Superintendent stressed a number of times that his
approvals and non-disapprovals were based on "the representations
made in the [a]pplication [by MBIA Insurance] and its supporting
submissions, and in reliance on the truth of those
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representations and submissions."   
Following the Superintendent's issuance of its
approval/non-disapproval letter, defendants consummated the
Transformation, which was given retroactive effect to January 1,
2009.  The very next day, MBIA Inc. publicly announced that it
had succeeded in segregating its municipal bond policy portfolio
from its structured-finance policy portfolio by restructuring its
principal insurance subsidiary, MBIA Insurance.  MBIA Inc.'s
Chief Executive Officer emphasized in a letter to shareholders
that the Transformation provided the holding company "with much
needed clean capacity for new municipal bond business."  
On February 18, 2009, the Superintendent issued his own
public statement, announcing that he had overseen "a
transformation of [MBIA Insurance] that effectively splits that
company in two, dividing its assets and liabilities between two
highly capitalized insurance companies."  Despite the
Superintendent's public endorsement of the restructuring, Moody's
further downgraded MBIA Insurance's credit rating to B3, six
steps below investment grade and three steps above "junk."  One
of the primary reasons Moody's cited for its downgrade of MBIA
Insurance was the "substantial reduction in claims-paying
resources relative to the higher-risk exposures in its insured
portfolio, given the removal of capital, and the transfer of
unearned premium reserves associated with the ceding of its
municipal portfolio to MBIA Illinois." 
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In May 2009, plaintiffs commenced this action in
Supreme Court alleging fraudulent conveyances under New York's
Debtor and Creditor Law, breach of contract, abuse of the
corporate form, and unjust enrichment.  "[A]midst an ongoing
financial crisis," plaintiffs allege that "[i]n an unlawful
attempt to escape MBIA Insurance's coverage obligations to
[p]laintiffs and other policyholders, [d]efendants executed a
series of bad faith fraudulent conveyances, in breach of MBIA
Insurance's contracts, to transfer MBIA Insurance assets into
MBIA Illinois -- an entity that [d]efendants structured to be
free from liabilities or other obligations to [p]laintiffs." 
Plaintiffs specifically allege that "[d]efendants [fraudulently]
stripped approximately $5 billion in cash and securities out of
MBIA Insurance" and that MBIA Insurance received no consideration
for the assets it transferred.  They further allege that the
fraudulent conveyances have exposed them to potentially billions
of dollars in losses since MBIA Insurance is now woefully
undercapitalized and insolvent.  Moreover, plaintiffs allege that
MBIA Inc. abused the corporate form by causing MBIA Insurance to
engage in these unfair transactions in order to shield assets
away from plaintiffs.  Plaintiffs seek to set aside the allegedly
fraudulent transfer or, in the alternative, a declaration that
defendants shall be jointly and severally liable to plaintiffs
under plaintiffs' insurance policies, or an award of damages.
Defendants moved to dismiss the complaint on June 9,
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2009.  Their principal basis for dismissal is that plaintiffs'
claims in this plenary proceeding are impermissible "collateral
attacks" on the Superintendent's approval of the Transformation,
which can only be challenged in an article 78 proceeding. 
Defendants also contend that the complaint fails to state
cognizable causes of action.  
On June 15, 2009 -- six days after defendants moved to
dismiss the complaint and within the four month statute of
limitations period -- plaintiffs separately filed an article 78
proceeding in Supreme Court, assigned to the same Justice
handling the plenary action, challenging the Superintendent's
2009 approval/non-disapproval of the Transformation.  Plaintiffs
assert in that proceeding that the Superintendent acted
arbitrarily and capriciously and abused his discretion.  For
relief, plaintiffs seek an annulment of the Superintendent's
determination and a declaration that the transactions approved by
the Superintendent in connection with the Transformation are null
and void.  The article 78 proceeding remains pending while the
parties conduct discovery.
In a written decision, Supreme Court denied defendants'
motion seeking dismissal of the complaint (ABN AMRO Bank, N.V. v
MBIA Inc., 26 Misc 3d 1223[A], 2010 NY Slip Op 50238[U] [Sup Ct,
NY County 2010]).  The court rejected defendants' "collateral
attack" argument, noting that plaintiffs were not seeking a
determination from the court that the Superintendent incorrectly
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applied New York Insurance Law (id. at *16).  Rather, Supreme
Court held, the "mere fact that there was earlier approval of the
. . . restructuring by the Insurance Department does not immunize
defendants from subsequent statutory and common law claims" (id.
at *13).  In so holding, the court observed that "[t]he
Superintendent was not called upon to examine whether defendants
intended to defraud policyholders" (id. at *15).  Supreme Court
then evaluated the legal sufficiency of the complaint and found
that plaintiffs adequately pleaded causes of action under the
Debtor and Creditor Law (see id. at *18).  It also concluded that
plaintiffs adequately stated claims for breach of contract
premised on a breach of the implied covenant of good faith and
fair dealing, abuse of the corporate form allowing for a
declaratory judgment piercing the corporate veil of MBIA
Insurance, and unjust enrichment (see id. at *18-*19). 
The Appellate Division, with two Justices dissenting,
reversed and granted defendants' motion to dismiss the complaint
(ABN AMRO Bank, N.V. v MBIA Inc., 81 AD3d 237, 248 [1st Dept
2011]).  The majority construed plaintiffs' complaint as a
"collateral attack" on the Superintendent's authorization of the
Transformation.  Citing its decision in Fiala v Metropolitan Life
Ins. Co. (6 AD3d 320 [1st Dept 2004]), the majority held that
"[a] plenary action that seeks the overturn of the
Superintendent's determination, or challenges matters that the
determination necessarily encompasses, constitutes an
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No. 124
impermissible indirect challenge to that determination" (ABN AMRO
Bank, 81 AD3d at 246 [internal quotation marks omitted]).  As a
result, the majority opined that an article 78 proceeding
challenging the Superintendent's determination is the only remedy
available to the plaintiffs (see id. at 246).  
The majority also held that, in any event, plaintiffs
three common law claims failed to state causes of action. 
Specifically, the majority noted that plaintiffs' breach of
contract and piercing of the corporate veil claims should have
been dismissed on the ground that plaintiffs fail to allege a
default on payments owed to them under their policies (see id. at
244-245).  The majority found that "[p]laintiffs also fail to
allege particularized statements detailing fraud or other
corporate misconduct that would warrant piercing the corporate
veil" (id. at 245).  Finally, the majority concluded that
plaintiffs failed to state a cause of action for unjust
enrichment because they did not allege that "MBIA Insurance has
conferred some benefit upon MBIA Inc. and MBIA Illinois at
plaintiffs' expense" (id. at 246).  
The two dissenting Justices agreed with the majority
that plaintiffs' unjust enrichment cause of action should have
been dismissed, but would have otherwise affirmed the order of
Supreme Court (see id. at 253 [Abdus-Salaam, J. dissenting in
part]).  The dissent rejected the notion that an article 78
proceeding is the sole remedy available to plaintiffs here (see
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id. at 252-253).  The dissenting Justices reasoned that the
Superintendent's decision did not have a preclusive effect on
plaintiffs' right to assert claims against defendants because,
unlike the plaintiffs in Fiala and the other cases cited by the
majority, plaintiffs here had no "opportunity to be heard or
otherwise provide input regarding the determination" (id. at
253). 
Furthermore, the dissent concluded that plaintiffs
sufficiently pleaded a cause of action for breach of contract,
under a theory that defendants breached an implied covenant of
good faith, where they allege that defendants "substantially
reduc[ed] the likelihood that MBIA Insurance [would] be able to
pay its policyholders," thereby "injuring the right of plaintiffs
to receive the fruits of the contract" (id. at 254 [internal
quotation marks and brackets omitted]).  Finally, the dissent
concluded that plaintiffs sufficiently pleaded their claim for a
declaratory judgment and piercing of the corporate veil,
observing that plaintiffs allege that MBIA Inc. abused the
privilege of doing business in the corporate form by causing MBIA
Insurance to make fraudulent conveyances for no value (see id. at
254-255).
Plaintiffs appeal as of right pursuant to CPLR 5601 (a)
and we now modify.
II.
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Defendants have consistently maintained that
plaintiffs' plenary claims under the Debtor and Creditor Law and
the common law constitute "impermissible collateral attacks" on
the Superintendent's approval of the Transformation.  To support
their position, defendants do not argue that plaintiffs are
collaterally estopped from commencing a proceeding in Supreme
Court following the Superintendent's determination.  Rather,
defendants contend on this appeal that the Insurance Law vests
the Superintendent with "exclusive original jurisdiction" to
adjudicate plaintiffs' claims that may only be challenged through
an article 78 proceeding.  For the reasons that follow, we reject
this argument.
It is fundamental that "Article VI, § 7 of the NY
Constitution establishes the Supreme Court as a court of 'general
original jurisdiction in law and equity'" (Sohn v Calderon, 78
NY2d 755, 766 [1991], quoting NY Const, art VI, § 7 [a]).  "Under
this grant of authority, the Supreme Court 'is competent to
entertain all causes of action unless its jurisdiction has been
specifically proscribed" (id., quoting Thrasher v United States
Liab. Ins. Co., 19 NY2d 159, 166 [1967]).  Indeed, "it has never
been suggested that every claim or dispute arising under a
legislatively created scheme may be brought to the Supreme Court
for original adjudication" (id.).  Thus, "the constitutionally
protected jurisdiction of the Supreme Court does not prohibit the
Legislature from conferring exclusive original jurisdiction upon
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an agency in connection with the administration of a statutory
regulatory program" (id. at 767).
We applied these principles in Sohn and held the agency
in question there, the Division of Housing and Community Renewal
(DHCR), had exclusive original jurisdiction to resolve a dispute
concerning a landlord's entitlement to demolish a rent regulated
building (see id. at 767-768).  In analyzing the statute
governing DHCR's authority, the Administrative Code of City of
New York § 26-408, we observed that it was "beyond question that
the Legislature intended" such disputes "to be adjudicated by the
DHCR" (id. at 765-766).  Thus, we concluded that the statutory
scheme proscribed the landlord in that case from circumventing
DHCR's authority and commencing an action in Supreme Court
seeking a declaration that was within DHCR's exclusive purview
(see id. at 767-768).  We noted that the landlord, of course,
could later challenge a determination made by DHCR by way of an
article 78 proceeding (see id. at 767).
On the other hand, in Richards v Kaskel (32 NY2d 524
[1973]), we held that section 352-e of the General Business Law,
which vests the Attorney General with exclusive jurisdiction to
approve a cooperative building conversion plan, did not preclude
the plaintiffs, tenants of a rent stabilized apartment complex,
from commencing a private lawsuit alleging that their landlord
engaged in fraudulent misconduct in connection with such a plan
(see id. at 535).  There, we observed that section 352-e
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authorized the Attorney General "to consider the sufficiency of
the language and content of the [cooperative conversion] and [to
determine] that the plan . . . complied with the disclosure
requirements of the statute" (id. at 535 n 5).  Given the limited
scope of the Attorney General's adjudicatory authority under this
section of the General Business Law, we concluded that the
Legislature did not "intend[] to deprive the court of its
traditional equitable jurisdiction to consider claims of
illegality on the part of the sponsor apart from noncompliance
with that provision" (id.; see also McGee v Lepow, 82 AD2d 746,
747 [1st Dept 1981], appeal dismissed, 54 NY2d 1027 [1981]).   
In this case, defendants essentially ask us to construe
the Superintendent's exclusive original jurisdiction to approve
the Transformation under the relevant provisions of the Insurance
Law to mean that he is also the exclusive arbiter of all private
claims that may arise in connection with the Transformation --
including claims that the restructuring rendered MBIA Insurance
insolvent and was unfair to its policyholders.  Defendant's
contention, taken to its logical conclusion, would preempt
plaintiffs' Debtor and Creditor Law and common law claims.  We
reject this argument and conclude that there is no indication
from the statutory language and structure of the Insurance Law or
its legislative history that the Legislature intended to give the
Superintendent such broad preemptive power (see Matter of
Zuckerman v Board of Educ. of City School Dist. of N.Y., 44 NY2d
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336, 342-343 [1978] ["Although (Public Employment Relations Board
[PERB]) has exclusive jurisdiction of labor disputes between
public employers and public employees involving the right to
organize and the right to negotiate in good faith, this
jurisdiction does not mean that any and all disputes between such
parties fall exclusively to PERB.  PERB's jurisdiction
encompasses only those matters specifically covered by the Taylor
Law."]).
If the Legislature actually intended the Superintendent 
to extinguish the historic rights of policyholders to attack
fraudulent transactions under the Debtor and Creditor Law or the
common law, we would expect to see evidence of such intent within
the statute.  Moreover, we would expect that, in such a
situation, affected policyholders, such as plaintiffs, would have
notice and an opportunity to be heard before the Superintendent
made his determinations.  Here, we find no such intent in the
statute.1  Nor do we see a provision that required the
Superintendent to provide notice and an opportunity to be heard
to plaintiffs before he approved the Transformation (cf. Shah v
Metropolitan Life Ins. Co., 2003 NY Slip Op 50591[U] *12 [Sup Ct,
1 We agree with the dissent that "intent may be implied from
the nature of the subject matter being regulated" and that "[a]
comprehensive and detailed statutory scheme may be evidence of
the Legislature's intent to preempt" (dissenting op at 4-5,
quoting Matter of Cohn v Board of Appeals of Vil. of Saddle Rock,
100 NY2d 395, 400 [2003]).  We disagree, however, that the
Insurance Law implies such an intent here. 
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NY County, 2003], affd in part Fiala, 6 AD3d at 321-322 [in the
context of an article 73 demutilization, following the required
statutory notice and an opportunity to be heard by the
policyholders, "[t]he [L]egislature expressly placed the
determination as to whether a plan of reorganization complied
with the statute and was fair and equitable to policyholders in
the (exclusive jurisdiction) of the Superintendent"]).
Defendants nonetheless look to Insurance Law § 326 (a)
as a provision conferring exclusive authority on the
Superintendent to adjudicate plaintiffs' private claims. 
Defendant's reliance on such provision, however, is entirely
misplaced.  That statute, as pertinent here states that "any
order, regulation or decision of the [S]uperintendent is declared
to be subject to judicial review in a proceeding under article
[78] of the civil practice law and rules."  A cursory reading of
the plain language reveals that it does not vest the
Superintendent with the power to consider causes of action, such
as plaintiffs'.  Rather, the statute merely provides that the
Superintendent's decisions -- which derive from legislatively
designated authority under the Insurance Law -- are subject to
review in an article 78 proceeding (see Travelers Indem. Co. v
State of New York, 33 AD2d 127, 128 [3d Dept 1969], affd 28 NY2d
561 [1971] ["it is clear from the legislative history that
(Insurance Law § 326) was written in its present form to insure
that all and not just some determinations" made by the
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(Superintendent) were reviewable by an article 78 proceeding"]). 
The Superintendent's determinations, however, have never included
the adjudication of claims like those plaintiffs have put forward
in this action.  Nor can these claims be properly raised and
adjudicated in an article 78 proceeding.
III.    
Because we perceive no basis to conclude that the
Legislature divested Supreme Court of its general jurisdiction to
adjudicate plaintiffs' Debtor and Creditor Law and common law
claims, explicitly through the Insurance Law or otherwise, we
next turn to the preclusive effect, if any, of the
Superintendent's approval of the Transformation on this plenary
action.  Such an inquiry requires an analysis of administrative
collateral estoppel principles.  At the outset, however, we
observe that defendants correctly concede that collateral
estoppel does not apply here.  While our inquiry would normally
end with such a concession, a discussion is necessary here as the
so-called "collateral attack doctrine" does not exist apart from
the doctrines of exclusive original jurisdiction and
administrative collateral estoppel principles.  And there is good
reason for this.  The recognized doctrines, as they exist in New
York, build in protections of notice and opportunity to be heard
for affected constituencies.   
The doctrine of collateral estoppel (or issue
preclusion) is rooted in principles of fairness.  It is well
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settled that the doctrine "may be invoked in a subsequent action
or proceeding to prevent a party from relitigating an [identical]
issue decided against that party in a prior adjudication"
(Staatsburg Water Co. v Staatsburg Fire Dist., 72 NY2d 147, 152-
153 [1988]).  In Capital Tel. Co. v Pattersonville Tel. Co. (56
NY2d 11 [1982]), we reaffirmed the principle that collateral
estoppel applies to an administrative proceeding (id. at 17).  In
the context of administrative agency determinations, we have
recognized that the doctrine of collateral estoppel "is applied
more flexibly, and additional factors must be considered by the
court" (Allied Chem. v Niagara Mohawk Power Corp., 72 NY2d 271,
276 [1988]).  "These additional requirements are often summed up
in the beguilingly simple prerequisite that the administrative
decision be 'quasi-judicial' in character" (id., quoting Ryan v
New York Tel. Co., 62 NY2d 494, 500 [1984]).   
An administrative decision is quasi-judicial in
character when it is "'rendered pursuant to the adjudicatory
authority of an agency to decide cases brought before its
tribunals employing procedures substantially similar to those
used in a court of law'" (Matter of Jason B. v Novello, 12 NY3d
107, 113 [2009], quoting Ryan, 62 NY2d at 499).  Thus, for
collateral estoppel to be triggered, not only must the identity
of the issue decided in the prior action or proceeding have been
the same, but also "there must have been a full and fair
opportunity to contest the decision now said to be controlling"
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(Gilberg v Barbieri, 53 NY2d 285, 291 [1981], quoting Schwartz v
Public Adm'r of County of Bronx, 24 NY2d 65, 71 [1969]; see also
Capital Tel. Co., 56 NY2d at 17). 
Here, even assuming the issues considered by the
Superintendent in approving the Transformation are identical to
the issues raised by plaintiffs in their plenary action (which
they are not), plaintiffs had no opportunity to contest the
Superintendent's determination or, more importantly, challenge
the validity of the financial information provided to him by
defendants which formed the basis of the Superintendent's
approval.  The record is indisputable on this point.  MBIA
Insurance submitted a private application to the Superintendent. 
The Superintendent did not conduct public hearings or provide
public notice before rendering his determination.  Crucially, the
Superintendent accepted the truth of defendants' submissions (cf.
Shah, 2003 NY Slip Op 50591[U] at *12-13, affd in part Fiala, 6
AD3d at 321 [plenary lawsuit dismissed as a collateral attack on
the Superintendent's decision to approve a demutualization of an
insurance company where public hearings were held and plaintiff
had notice and opportunity to be heard]).  Simply put, there was
nothing "quasi-judicial" about the Superintendent's approval
process that ought to be binding on plaintiffs in this case (see
Staatsburg Water Co., 72 NY2d at 154 [even where party had an
opportunity to participate in a prior proceeding, such proceeding
is not quasi-judicial, and therefore not binding, where party's
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participation "did not necessarily amount to a full and fair
opportunity to contest the determination"]).
That the Superintendent complied with lawful
administrative procedure, in that the Insurance Law did not
impose a requirement that he provide plaintiffs notice before
issuing his determination, does not alter our analysis.  To hold
otherwise would infringe upon plaintiffs' constitutional right to
due process.  Indeed, as we stated in Gilberg, "[d]ue process, of
course, would not permit a litigant to be bound by an adverse
determination made in a prior proceeding to which he was not a
party or in privity with a party" (53 NY2d at 291; see also
Phillips Petroleum Co. v Shutts, 472 US 797, 811-812 [1985] [a
party cannot be bound by a prior proceeding without "minimum
procedural due process protection," including "notice plus an
opportunity to be heard and participate in the litigation"]). 
Clearly plaintiffs here were not in privity with the
Superintendent.
IV.
Satisfied that the Superintendent's approval of the
Transformation does not bar plaintiffs' independent plenary
action, we address the sufficiency of the pleadings.  Our
standard of review is well-familiar:  "On a motion to dismiss
pursuant to CPLR 3211, the pleading is to be afforded a liberal
construction" (Leon v Martinez, 84 NY2d 83, 87 [1994]; see CPLR
3026).  Courts must "accept the facts as alleged in the complaint
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as true, accord plaintiffs the benefit of every possible
favorable inference, and determine only whether the facts as
alleged fit within any cognizable legal theory" (Leon, 84 NY2d at
87-88).
We conclude that plaintiffs adequately pleaded causes
of actions under the Debtor and Creditor Law.  Plaintiffs premise
their first claim on Debtor and Creditor Law § 273, which
requires them to allege that MBIA Insurance fraudulently made
"conveyance[s]" that rendered it "insolvent" because it did not
receive "fair consideration" for such conveyances.  They base
their second claim on Debtor and Creditor Law § 274, which
similarly requires plaintiffs to allege that MBIA Insurance
fraudulently made "conveyance[s] . . . without fair
consideration," which left it with "unreasonably small capital." 
Debtor and Creditor Law § 276 forms the basis of plaintiffs'
third cause of action.  That statute requires plaintiffs to
allege that defendants made conveyances and incurred obligations
with the intent "to hinder, delay, or defraud either present or
future creditors."
Plaintiffs, who are undoubtedly creditors of MBIA
Insurance, support all of these claims by describing a series of
allegedly fraudulent transactions made in bad faith by defendants
after the Superintendent's approval of the Transformation, in
which they ultimately assert "stripped approximately $5 billion
in cash and securities out of MBIA Insurance."  Further,
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No. 124
plaintiffs allege that MBIA Insurance received no consideration
for the assets it transferred to MBIA Inc.  As a result,
plaintiffs allege that MBIA Insurance is insolvent and unable to
meet its obligations under the terms of their policies.  These
allegations clearly support causes of action under sections 273
and 274 of the Debtor and Creditor Law.  Moreover, these
allegations, taken together and drawing all reasonable inferences
in favor of plaintiffs, as we must at this stage of the
litigation, sufficiently allege an intent on the part of
defendants to defraud plaintiffs under section 276 (see Dempter v
Overview Equities, 4 AD3d 495, 498 [2d Dept 2004]).
Turning to plaintiffs' common law claims, we likewise
conclude that plaintiffs pleaded a viable cause of action for
breach of contract based upon a breach of the implied covenant of
good faith.  Of course, the implied covenant of good faith and
fair dealing "embraces a pledge that neither party shall do
anything which will have the effect of destroying or injuring the
right of the other party to receive the fruits of the contract"
(Dalton v Educational Testing Serv., 87 NY2d 384, 389 [1995]
[internal quotation marks omitted]).  Here, plaintiffs
sufficiently allege that MBIA Insurance, by fraudulently
transferring billions of dollars of its assets to MBIA Inc. for
no consideration, "violated the covenant by substantially
reducing the likelihood that [it] will be able" to meet its
obligations under the terms of the insurance policies (ABN AMRO
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No. 124
Bank, N.V., 81 AD3d at 254 [Abdus-Salaam, J. dissenting]; see
also MBIA Ins. Corp. v Countrywide Home Loans, Inc., 2009 NY Slip
Op 31527[U], *19 [Sup Ct, NY County 2009] [MBIA Insurance itself
successfully pleaded a breach of contract cause of action
premised on breach of implied covenant by alleging that defendant
"unfairly shifted the risks of default and delinquencies" to
it]).2  
We further conclude that the complaint adequately
states a claim for abuse of the corporate form that may support a
declaration piercing the corporate veil of MBIA Insurance.  As
the Appellate Division dissent appropriately observed, "[t]he
party seeking to pierce the corporate veil must establish that
the owners, through their domination, abused the privilege of
doing business in the corporate form to perpetrate a wrong or
injustice against that party such that a court in equity will
intervene" (Matter of Morris v New York State Dept. of Taxation &
Fin., 82 NY2d 135, 142 [1993]).  In that regard, plaintiffs'
allegations that MBIA Inc. abused its control of its wholly-owned
subsidiary, MBIA Insurance, by causing it to engage in harmful
transactions that now shield billions of dollars in assets from
plaintiffs and expose them to significant liability meets this
2 Contrary to the dissent, plaintiffs' assertions that the
allegedly fraudulent transactions rendered MBIA Insurance
insolvent and unable to meet payments under the terms of the
policies, as pleaded in their complaint, can very well be
considered "objectively measurable deviations from specific
contract provisions" (dissenting op at 9).   
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No. 124
test (cf. East Hampton Union Free School Dist. v Sandpebble
Bldrs., Inc., 16 NY3d 775, 776 [2011] [piercing the corporate
veil claim properly dismissed where plaintiff failed to allege
any harm purportedly resulting from an abuse or perversion of the
corporate form]).
Finally, we agree with the Appellate Division that
plaintiffs' cause of action for unjust enrichment should be
dismissed.   
Accordingly, the order of the Appellate Division should
be modified, without costs, in accordance with this opinion and
as so modified, affirmed.  
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ABN AMRO Bank, N.V. v MBIA, Inc.
No. 124 
READ, J. (DISSENTING):
Plaintiffs seek relief in this plenary action brought
pursuant to the Debtor and Creditor Law and common law that, if
granted, would annul the decision made by the Superintendent of
Insurance on February 17, 2009 to approve the restructuring of
MBIA Insurance Corporation (MBIA Insurance) and related
subsidiaries and affiliates by unwinding the underlying
transactions.  Whether or not this lawsuit is called, in the
coinage of the First Department, a "collateral attack" on the
Superintendent's approval, the fact remains that the Legislature
has confined any challenge to the propriety of the restructuring
to a CPLR article 78 proceeding.  This is so because the
Insurance Law has preempted plaintiffs' statutory and common law
causes of action, which are all grounded in the notion that the
restructuring sanctioned by the Superintendent caused MBIA
Insurance to be insufficiently capitalized to the detriment of
its structured-finance policyholders.  Accordingly, I
respectfully dissent. 
I.
New York law has historically vested the Superintendent
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No. 124
with broad authority to regulate the insurance industry (see
Insurance Law § 201 ["The superintendent shall possess the
rights, powers, and duties, in connection with the business of
insurance in this state, expressed or reasonably implied by this
chapter or any other applicable law of this state"]).  As
particularly relevant to this lawsuit, he is responsible for
making sure that insurance companies possess sufficient reserves
to pay all their claims (see Insurance Law § 1303), even in the
face of "excessive losses occurring during adverse economic
cycles" (see id. § 6903 [a] [1]).
The regulatory regime in the Insurance Law embraces
both advance approval of certain transactions that may affect an
insurer's viability, and post-transaction supervision of the
insurer's financial condition.  Further, most significant
transactions between insurers in a holding company system (as
happened with the restructuring) require the Superintendent's
prior approval that the terms of the transaction are "fair and
equitable," and his consideration of whether the transaction may
"adversely affect the interests of policyholders" (see id. § 1505
[a] [1],[e]).  Thus, the Superintendent reviews any proposed
dividend distribution exceeding certain thresholds to make
certain that paying it will leave the insurer with sufficient
assets to satisfy all outstanding claims (see id. § 4105 [a]). 
Similarly, he reviews proposed stock redemption plans in advance
to ensure that they are "reasonable and equitable" (see id. §
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No. 124
1411 [d]).
In addition to his prior approval of insurance
transactions, the Superintendent also continually monitors
domestic insurers' financial health through periodic examinations
(see id. §§ 309-310), and reviews of insurers' annually filed
financial statements and reports (see id. § 307).  If as part of
his review the Superintendent determines that an insurer lacks
sufficient reserves -- i.e., if it "is unable to pay its
outstanding lawful obligations as they mature in the regular
course of business" (see id. § 1309 [a]) -- the Superintendent
has the exclusive authority to place the insurer into specialized
liquidation or rehabilitation proceedings under article 74 of the
Insurance Law (see id. § 7402 [a], [e]).  Article 74 authorizes
him to avoid "[a]ny transfer of . . . the property of an insurer
. . . with the intent of giving to any creditor or enabling him
to obtain a greater percentage of his debt than any other
creditor of the same class" (see id. § 7425 [a]).
The Superintendent acted to carry out his
responsibilities under the Insurance Law's comprehensive
regulatory regime when he approved the dividend payment and stock
redemption, and did not disapprove the reinsurance transaction,
the individual components of the restructuring proposed by MBIA
Insurance.  Although the majority notes that the Superintendent
"stressed a number of times that his approvals and non-
disapproval[] were based on 'the representations made in the
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No. 124
[a]pplication [by MBIA Insurance] and its supporting submissions,
and in reliance on the truth of those representations and
submissions'" (majority op at 6-7), he equally emphasized that
his decisionmaking was informed by "the Department's examination
of the MBIA Entities' financial condition prior to" the
restructuring, and "the Department's analysis of the MBIA
Entities' financial condition after the effectuation of" the
restructuring.  The approval, a complex 10-page document, also
imposed various conditions on MBIA Insurance and/or its related
affiliates and subsidiaries.  In short, the Superintendent issued
the approval only after a multi-month investigation of MBIA
Insurance's finances, which encompassed the review of voluminous
raw financial data and the running of "super-stressed or break-
the-bank" tests by experts within the Department.  He was not
simply a passive recipient of information from MBIA Insurance,
powerless to verify that company's representations and dependent
on its good graces, as the majority implies.1
"The Legislature may expressly state its intent to
preempt, or that intent may be implied from the nature of the
subject matter being regulated as well as the scope and purpose
of the state legislative scheme . . . A comprehensive and
detailed statutory scheme may be evidence of the Legislature's
1Of course, if plaintiffs believe that the Superintendent
relied on inaccurate or unreliable data, they may pursue this
tack in their CPLR article 78 proceeding.
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No. 124
intent to preempt" (Matter of Cohn v Board of Appeals of Vil. of
Saddle Rock, 100 NY2d 395, 400 [2003] [state law governing review
of area variances preempted contrary local law] [emphases
added]).  As already noted, the Insurance Law vests broad powers
in the Superintendent to regulate New York's insurance industry. 
More to the point, he is directed to ensure that precisely the
kinds of transactions at issue in this case are carried out
fairly and equitably, and leave the affected insurers with
sufficient assets to satisfy their obligations to policyholders. 
The particular provisions of the "legislative scheme" relevant
here, briefly described earlier, could hardly be more
"comprehensive and detailed."
Concomitantly, the Superintendent considered the
precise issues disputed by plaintiffs in this lawsuit when he
approved the restructuring.  In other words, plaintiffs' plenary
action not only expressly seeks to undo the restructuring, but
does so by contesting the findings underpinning the
Superintendent's approval.  There is essentially no daylight
between the causes of action asserted by plaintiffs and the
substance of the Superintendent's review.
For example, just as Debtor and Creditor Law § 274's
prohibition on transfers that leave companies with "unreasonably
small capital" is intended to keep companies sufficiently
capitalized to "sustain operations" (Moody v Securities Pac. Bus.
Credit Inc., 971 F2d 1056, 1069, 1070 [3d Cir 1992]), so the
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No. 124
Superintendent's supervision of reserves is intended to ensure
that insurance companies can continue to operate by maintaining
their ability to pay claims (see Insurance Law § 1309 [a]). 
Similarly, Debtor and Creditor Law § 276's prohibition on
transfers that may "hinder or delay . . . either present or
future" policyholders is essentially equivalent to the
requirement that the Superintendent must determine that a
transaction is "reasonable and equitable" (Insurance Law § 1411
[d]).
And in any event, the critical question is whether "the
thrust of [plaintiffs'] complaint" goes to matters already
determined by an expert agency that has been delegated the
primary authority to resolve such issues (Whitney Nat'l Bank in
Jefferson Parish v Bank of New Orleans & Trust Co., 379 US 411,
417 [1965] [emphasis added]).  There need not be exact
correspondence.  And here, "the thrust" of plaintiffs' complaint
is that the restructuring caused MBIA Insurance to be
insufficiently capitalized to the detriment of its structured-
finance policyholders.  The Superintendent's approval of the
restructuring was premised on his determination that this was not
the case.  Put another way, plaintiffs assert that the
restructuring stripped MBIA Insurance of needed reserves whereas
the Superintendent concluded that the restructuring left the
insurer in sound financial condition, a prerequisite to his
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No. 124
approval.1 
The majority seems to suggest that if the Legislature
"actually intended the Superintendent to extinguish the historic
rights of policyholders to attack fraudulent transactions under
the Debtor and Creditor Law or the common law, we would expect to
see evidence of such intent within the statute"; and "we would
expect that . . . affected policyholders . . . would have notice
and an opportunity to be heard before the Superintendent made his
determinations" (majority op at 16).  As for the first
proposition, we have, as already discussed, long held that
preemption need not be express where the legislative regime is
comprehensive and detailed.  Most recently, for example, we held
in People v Grasso (11 NY3d 64 [2008]) that the Not-for-Profit
Corporation Law preempted certain common law claims pressed by
the Attorney General.  There was no express language in the
statute to this effect.  And I am not aware that we have ever
considered the scope of an agency's notice-and-hearing provisions
to be relevant to preemption.
1The majority compares this case to Richards v Kaskel (32
NY2d 524, 535, n 5 [1973]); however, in Richards, the
administrative action -- the Attorney General's acceptance of a
sponsor's co-operative offering plan -- "[did] not constitute
approval" of the plan by him (see General Business Law § 352-e
[4]; Charles H. Greenthal & Co. v Lefkowitz, 32 NY2d 457, 462
[1973] [noting that an offering plan is "filed simply for
informational purposes" to enable prospective buyers to decide
whether to purchase an interest]).  Moreover, the plaintiffs in
Richards alleged specific oral misrepresentations to tenants
apart from the offering plan (see Richards v Kaskel, 69 Misc 2d
435, 443 [Sup Ct NY County 1972]).  
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No. 124
    
II.
In my view, plaintiffs' common-law causes of action are
also preempted because they are simply artfully repackaged
versions of the Debtor and Creditor Law claims.  In any event,
these causes of action are deficient on the merits, as the
Appellate Division majority correctly concluded.
The majority reinstates plaintiffs' breach of contract
claim, locating the breach within the implied covenant of good
faith and fair dealing because "plaintiffs sufficiently allege
that MBIA Insurance, by fraudulently transferring billions of
dollars in assets to MBIA Inc. for no consideration, violated the
covenant by substantially reducing the likelihood that [it] will
be able to meet its obligations under the terms of the insurance
policies" (majority op at 23 [internal quotation marks omitted]). 
For support, the majority cites MBIA Ins. Co. v Countrywide Home
Loans, Inc. (2009 NY Slip Op 31527U [Sup Ct, NY County 2009]). 
Countrywide underwrote and sold residential mortgage-
backed securities and obtained financial guarantee insurance on
those securities from MBIA Insurance.  To get MBIA Insurance to
sign on, Countrywide represented that if there was "a breach of
any representation or warranty related to a mortgage loan (a
'Defective Loan'), it would either cure the breach or repurchase
or substitute eligible mortgage loans for the Defective Loan." 
The ultimate insurance between Countrywide and MBIA Insurance, in
contrast to this case, "incorporated the representations and
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No. 124
warranties . . . and gave MBIA [Insurance] the right to rely on
these representations and warranties, to enforce their terms, and
to exercise remedies for any breach." 
Supreme Court rejected MBIA Insurance's generalized
claims that the parties' insurance agreement included an implied
promise that Countrywide would tell MBIA Insurance all about
different special kinds of risk and use underwriting standards of
a certain quality.  But the court upheld one narrow aspect of
MBIA Insurance's breach of contract claim: "the claim survives to
the limited extent that it asserts that corrective action -- such
as investigating loans which became over 30-days delinquent --
would have preserved MBIA [Insurance]'s benefits under the
bargain, but that Countrywide Home deliberately refused to take
such action in order to collect more late payment fees and
service charges."  In other words, Countrywide allegedly
frustrated specific objectives in the parties' contract.
Here, by contrast, plaintiffs have not alleged any
objectively measurable deviations from specific contract
provisions.  And it is undisputed that, as part of the
restructuring, MBIA Illinois agreed to reinsure the $554 billion
in outstanding municipal bonds issued by MBIA Insurance.  As
plaintiffs themselves explain, the "reinsurance gives
policyholders direct claims against both the original insurer
(MBIA Insurance) and the reinsurer (MBIA Illinois)."  One can
hardly say that MBIA Insurance derives no benefit whatsoever from
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No. 124
the fact that one of its sister companies is now jointly liable
for its entire municipal bond portfolio. 
Plaintiffs also allege that the parent company abused
MBIA Insurance's corporate form by shifting assets to cause
insolvency and lack of present ability to meet its obligations to
policyholders (although the company has, in fact, paid all claims
that have become due since the restructuring).  To pierce the
corporate veil, plaintiff must show that "(1) the owners
exercised complete domination of the corporation in respect to
the transaction attacked; and (2) . . . such domination was used
to commit a fraud or wrong against the plaintiff which resulted
in plaintiff's injury" (Matter of Morris v New York State Dept.
of Taxation & Fin., 82 NY2d 135, 141 [1993]).  We have held that
"[t]hose seeking to pierce a corporate veil . . . bear a heavy
burden" (TNS v Holdings v MKI Sec. Corp., 92 NY2d 335, 339
[1998]).
In the majority's view, plaintiffs can apparently show
domination of MBIA Insurance by virtue of its status as a wholly-
owned subsidiary of MBIA Inc. (majority op at 24); however, "[i]t
is a general principle of corporate law deeply ingrained in our
economic and legal systems that a parent corporation . . . is not
liable for the acts of its subsidiaries" (United States v
Bestfoods, 524 US 51, 61 [1998]).  Further, the majority grounds
the requisite abuse of the corporate form on the allegation that
MBIA Inc. "caus[ed]" MBIA Insurance to undertake "transactions
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No. 124
that now shield" assets from plaintiffs -- in other words MBIA
Inc. purportedly drained capital from its subsidiary (id.).  As
the Second Circuit Court of Appeals has pointed out, though, "no
New York authority . . . disregards corporate form solely because
of inadequate capitalization" (Gartner v Snyder, 607 F2d 582, 588
[2d Cir. 1979]).
III.
The Superintendent approved MBIA Insurance's
restructuring after finding that it was fair and equitable and
would leave the affected insurers with sufficient assets to
satisfy their obligations to policyholders, including, of course,
these plaintiffs, who have persuaded the majority that the courts
may nonetheless review the restructuring de novo.  Having
recently merged the Departments of Insurance and Banking to
create a new Department of Financial Services to provide the
"responsive, effective, innovative, state banking and insurance
regulation . . . necessary to operate in a global, evolving and
competitive market place" (L 2011 ch 62, § 101-a), the
Legislature may wish to consider if, as a result of today's
decision, further legislation is now necessary to address the new
Department's envisioned role as the arbiter of major financial
transactions in these industries.  Critically, it does not
enhance New York's reputation as a major financial center for
insurers to be put in a position where they survive our State's
daunting regulatory gauntlet and gain approval for a financial
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No. 124
transaction under the Insurance Law, yet remain vulnerable to
multiple lawsuits brought in state and federal court2 by
disaffected policyholders who claim that the same transaction is
fraudulent under other state statutes and common law.  The
regulatory agency would not be a party in these lawsuits and,
after today's decision, there is no reason for such plaintiffs to
bring a CPLR article 78 proceeding in addition to their plenary
actions.3  It surely behooves the Legislature to make clear that
for which the majority discerns inadequate support in current
law: the State's comprehensive financial regulatory regime
preempts lawsuits under the Debtor and Creditor Law and common
law seeking to upset transactions approved or directed by the
2MBIA Insurance has also been sued in the United States
District Court for the Southern District of New York, and in the
Delaware Court of Chancery (see Aurelius Capital Master, LTF v
MBIA Ins. Corp., 695 F Supp 2d 68 [SD NY 2010] [suit by a
putative class of structured-finance policyholders]; Third Avenue
Trust v MBIA, 2009 Del Ch LEXIS 186 [Del Ch 2009] [suit by
noteholders]).  The plaintiffs in these two cases press the same
state statutory and common law claims advanced by plaintiffs in
this lawsuit.  Multiple lawsuits in multiple jurisdictions
present the obvious risk of conflicting or at least inconsistent
outcomes for different policyholders of the same insurer, further
undermining the certainty and stability of the Superintendent's
approval.
3Plaintiffs here did not commence their CPLR article 78
proceeding until shortly after MBIA Insurance filed its motion to
dismiss.  In the motion, MBIA Insurance argued that plaintiffs'
action was barred as a collateral attack on the Superintendent's
approval, which apparently alerted plaintiffs to the advisability
of initiating a CPLR article 78 proceeding before the four-month
statute of limitations expired.  Other policyholders who have
sued MBIA Insurance (see n 1, supra) did not commence CPLR
article 78 proceedings against the Superintendent. 
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No. 124
Superintendent (now, the Superintendent of Financial Services),
which may only be challenged in a CPLR article 78 proceeding. 
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order modified, without costs, in accordance with the opinion
herein and, as so modified, affirmed.  Opinion by Judge Ciparick.
Chief Judge Lippman and Judges Smith, Pigott and Jones concur.
Judge Read dissents in an opinion in which Judge Graffeo concurs.
Decided June 28, 2011
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