Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-06-55379/USCOURTS-ca9-06-55379-0/pdf.json

Parties Involved:
Altus Finance S.A.

Artemis America

Artemis Finance S.N.C.

Artemis S.A.
Appellant
CDR Enterprises

Consortium De Realisation S.A.

Credit Lyonnais S.A.

John Garamendi
Appellee
Jean Francois Henin

Jean Irigoin

MAAF Assurances

MAAF Vie S.A.

Alain Mallart

Novatec

Francois Pinault

Jean-Claude Seys

State of California

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

STATE OF CALIFORNIA, 

Plaintiff,

and

STEVE POIZNER,* as Insurance

Commissioner of the State of

California and as Conservator,

Liquidator and Rehabilitator of the

ESTATE OF EXECUTIVE LIFE

INSURANCE COMPANY,

Plaintiff-counter-defendantAppellant, No. 06-55297

v.  D.C. No.

CV-99-02829-AHM ALTUS FINANCE S.A., a corporation

organized under French law; CDR

ENTERPRISES, a corporation

organized under French law;

CREDIT LYONNAIS S.A., a

corporation organized under

French law; JEAN-CLAUDE SEYS, an

individual; JEAN FRANCOIS HENIN,

an individual; JEAN IRIGOIN, an

individual; ALAIN MALLART;

NOVATEC, e/s/a SDI VEDNOME S.A.; 

*Pursuant to Rule 43(c)(2) of the Federal Rules of Appellate Procedure,

Steve Poizner is substituted for John Garamendi as Plaintiff-counterdefendant-Appellant. 

11617

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CONSORTIUM DE REALISATION S.A., 

a corporation organized under

French law; MAAF ASSURANCES, a

mutual insurer organized under

French law; MAAF VIE S.A., a

corporation organized under

French law,

Defendants,  and

ARTEMIS S.A., a corporation under

French law; ARTEMIS FINANCE

S.N.C., an entity d/b/u French law;

ARTEMIS AMERICA; FRANCOIS

PINAULT,

Defendants-counter-claimantsAppellees. 

STATE OF CALIFORNIA, 

Plaintiff,

and

STEVE POIZNER, as Insurance

Commissioner of the State of No. 06-55379

California and as Conservator,  D.C. No. Liquidator and Rehabilitator of the CV-99-02829-AHM ESTATE OF EXECUTIVE LIFE

INSURANCE COMPANY,

Plaintiff-counter-defendantAppellee,

v. 

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ALTUS FINANCE S.A., a corporation 

organized under French law; CDR

ENTERPRISES, a corporation

organized under French law;

CREDIT LYONNAIS S.A., a

corporation organized under

French law; JEAN-CLAUDE SEYS, an

individual; JEAN FRANCOIS HENIN,

an individual; JEAN IRIGOIN, an

individual; ALAIN MALLART;

NOVATEC, e/s/a SDI VEDNOME S.A.;

CONSORTIUM DE REALISATION S.A.,

a corporation organized under

French law; MAAF ASSURANCES, a

mutual insurer organized under 

French law; MAAF VIE S.A., a

corporation organized under

French law,

Defendants,

ARTEMIS FINANCE S.N.C., an entity

d/b/u French law; ARTEMIS

AMERICA; FRANCOIS PINAULT,

Defendants-counter-claimants,

and

ARTEMIS S.A., a corporation under

French law,

Defendant-counter-claimantAppellant. 

POIZNER v. ARTEMIS S.A. 11619

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STATE OF CALIFORNIA, 

Plaintiff,

and

STEVE POIZNER, as Insurance

Commissioner of the State of

California and as Conservator,

Liquidator and Rehabilitator of the

ESTATE OF EXECUTIVE LIFE

INSURANCE COMPANY,

Plaintiff-counter-defendant,

v.

ALTUS FINANCE S.A., a corporation

organized under French law; CDR No. 06-55391

ENTERPRISES, a corporation D.C. No.

organized under French law;  CV-99-02829-AHM

CREDIT LYONNAIS S.A., a

OPINION corporation organized under

French law; JEAN-CLAUDE SEYS, an

individual; JEAN FRANCOIS HENIN,

an individual; JEAN IRIGOIN, an

individual; ALAIN MALLART;

NOVATEC, e/s/a SDI VEDNOME S.A.;

CONSORTIUM DE REALISATION S.A.,

a corporation organized under

French law; MAAF ASSURANCES, a

mutual insurer organized under

French law; MAAF VIE S.A., a

corporation organized under

French law,

Defendants, 

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ARTEMIS FINANCE S.N.C., an entity 

d/b/u French law; ARTEMIS

AMERICA; FRANCOIS PINAULT,

Defendants-counter-claimants,

and

ARTEMIS S.A., a corporation under

French law,

Defendant-counter-claimant-  Appellee,

v.

NATIONAL ORGANIZATION OF LIFE

AND HEALTH INSURANCE GUARANTY

ASSOCIATIONS; CALIFORNIA LIFE AND

HEALTH INSURANCE GUARANTEE

ASSOCIATION,

Plaintiff-intervenors-Appellants. 

Appeal from the United States District Court

for the Central District of California

A. Howard Matz, District Judge, Presiding

Argued and Submitted

December 5, 2007—Pasadena, California

Filed August 25, 2008

Before: Thomas G. Nelson, Richard A. Paez, and

Jay S. Bybee, Circuit Judges.

Opinion by Judge Bybee

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COUNSEL

Kevin Russell, Howe & Russell, P.C., Washington, D.C.;

Gary L. Fontana and Jennifer R. McGlone, Thelen Reid &

Priest, LLP, San Francisco, California, for the appellant/crossappellee.

James P. Clark, Gibson, Dunn & Crutcher, LLP, Los Angeles,

California; Robert L. Weigel, Gibson, Dunn & Crutcher, LLP,

New York, New York, for the appellee/cross-appellant.

Cindy C. Oliver and Craig R. Welling, Rothberger, Johnson

& Lyons, LLP, Denver, Colorado, for the intervenors-appellants.

OPINION

BYBEE, Circuit Judge: 

This litigation arises from the 1991 insolvency and subsequent rehabilitation of the Executive Life Insurance Company

(ELIC), following the largest insurance failure in California

history. Pursuant to a judicially supervised rehabilitation plan,

Insurance Commissioner John Garamendi1 (the Commis1

John Garamendi served as Insurance Commissioner from 1991-1995

and again from 2003-2007. Steve Poizner succeeded him on January 8,

2007. 

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sioner) oversaw competitive bidding for the assets of the

ELIC Estate, which included a large junk bond portfolio.

Altus S.A., a subsidiary of Credit Lyonnais S.A., which is

controlled by the French government, and the MAAF Group,

a consortium of French and Swiss insurers, submitted the winning bid. Altus purchased the junk bond portfolio for cash,

and the MAAF Group agreed to create a new company to

reinsure ELIC’s outstanding insurance policies. Artemis S.A.,

a holding company controlled by Francois Pinault, subsequently purchased a percentage of that junk bond portfolio

and the newly formed insurance company. 

The rehabilitation plan was a resounding success. The

Commissioner proclaimed the rehabilitation of ELIC “by any

objective standards a home run,” resulting in a full recovery

for 92 percent of the insolvent insurer’s former policy holders.

The rehabilitation was also a home run for Artemis, which

earned hundreds of millions of dollars in profit from appreciation of the ELIC Estate’s junk bond portfolio.2

In 1999, however, years after the rehabilitation plan had

been implemented, the Commissioner learned of a conspiracy

between the members of the Altus/MAAF Group to circumvent regulatory barriers to foreign entities, like Altus, from

issuing insurance in California.3 The Commissioner filed this

2

See, e.g., Vicky Ward, Francois Pinault’s Ultimate Luxury, VANITY

FAIR, December 2007, at http://www.vanityfair.com/culture/features/2007/

12/pinault200712. 

3Discovery of the Altus/MAAF Group conspiracy generated voluminous litigation. See, e.g., Watson v. Garamendi, 262 Fed. Appx. 805 (9th

Cir. 2008); Cal. ex rel. RoNo, LLC v. Altus Fin., S.A., 344 F.3d 920 (9th

Cir. 2003); Carranza-Hernandez v. Artemis, S.A., 34 Fed. Appx. 593 (9th

Cir. 2002); Carranza-Hernandez v. Altus Fin. Corp., 33 Fed. Appx. 364

(9th Cir. 2002); Low v. Altus Fin. S.A., 44 Fed. Appx. 282 (9th Cir. 2002);

AIG Retirement Services, Inc. v. Altus Fin. S.A., 2007 WL 5362724 (C.D.

Cal. May 31, 2007); Garamendi v. SDI Vendome S.A., 276 F. Supp. 2d

1030 (C.D. Cal. 2003); Low v. SDI Vendome S.A., 2003 WL 25678880

(C.D. Cal. 2003); Low v. Altus Fin., S.A., 136 F. Supp. 2d 1113 (C.D. Cal.

2001); Sierra Nat’l Ins. Holdings, Inc. v. Altus Fin., S.A., 2001 WL

1343855 (C.D. Cal. June 20, 2001); State v. Altus Fin., S.A., 36 Cal. 4th

1284 (2005). 

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civil suit against the members of the Altus/MAAF Group,

Artemis, and Pinault, alleging intentional misrepresentation,

concealment and conspiracy to defraud. The Altus/MAAF

Group defendants settled or defaulted on the claims. The case

proceeded to a bifurcated jury trial against Artemis and

Pinault. The National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) intervened to protect

its interests as a losing bidder for the assets of the ELIC

Estate. 

After a nine-week liability phase trial, the jury found Artemis liable for conspiracy only and exonerated Pinault. The

jury was unable to answer a special verdict form posing the

Commissioner’s principal theory of damages—that but for the

Altus/MAAF Group conspiracy, the Commissioner would

have selected the NOLHGA bid. The district court entered a

Post-Verdict Order barring proffer of that theory in the damages phase of trial. The Commissioner presented two alternate

theories of damages, and the jury awarded the Commissioner

$0 in compensatory damages and $700 million in punitive

damages. In an Order Re Punitive Damages, the district court

vacated the punitive damages award. The court made findings

of fact on the Commissioner’s equitable claims and awarded

him $241 million in restitution. 

Parties on both sides appealed the judgment. The Commissioner and NOLHGA challenge the Post-Verdict Order and

Order Re Punitive Damages and request reinstatement of the

$700 million punitive damages award. On cross-appeal, Artemis challenges the award of restitution and denial of its

motion for summary judgment on res judicata grounds, arguing that the Commissioner’s claims are an impermissible collateral attack on the judicially approved rehabilitation plan

and that the Commissioner should take nothing. For the reasons explained below, we affirm the Order Re Punitive Damages and the denial of Artemis’ motion for summary

judgment. We reverse the Post-Verdict Order, vacate the

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award of restitution, and remand to the district court for further proceedings.

I

Executive Life Insurance Company became insolvent in

1991, due in part to losses on the company’s large junk bond

portfolio. Pursuant to California law, Insurance Commissioner

John Garamendi became conservator of the ELIC Estate

under the supervision of the Los Angeles County Superior

Court (the Rehabilitation Court). The Commissioner developed a plan to rehabilitate ELIC, which contemplated a public

auction of the assets and liabilities of the ELIC Estate to a

new California insurance company that would reinsure

ELIC’s existing life insurance policies and annuity contracts

at a guaranteed minimum percentage of their former value. 

A. Altus/MAAF Group Conspiracy to Acquire ELIC’s

Assets

After a competitive bidding process in October 1991, the

Commissioner received eight bids, three of which merited full

consideration: a joint bid by Altus Finance S.A. (Altus), a

subsidiary of Credit Lyonnais S.A. that was controlled by the

French government, and the MAAF Group, a consortium of

French and Swiss insurance companies;4 a bid from the

National Organization of Life and Health Insurance Guaranty

Associations; and a bid by Sierra National Insurance Holdings, Inc. (Sierra). The NOLHGA and Sierra bids were

“bonds-in,” meaning that the ELIC junk bond portfolio would

remain in the rehabilitated insurance company. In contrast, the

Altus/MAAF Group bid was “bonds-out”: Altus would purchase the junk bond portfolio for cash, and the MAAF Group

would manage the rehabilitated insurance company without

4The MAAF Group included the following entities: MAAF Assurance;

MAAF Vie; Omnium Geneve; Financiere du Pacific; and SDI Vendome.

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the risk associated with continued ownership of the junk bond

portfolio. 

On October 24, 1991, the Commissioner conditionally

accepted the NOLHGA bid, but he identified several “serious

legal issues” and “potentially grave problems” that NOLHGA

would have to cure before its bid could be approved. NOLHGA responded to the Commissioner’s demands on November 4, 1991; however, the Commissioner formally rejected the

NOLHGA bid two days later, identifying numerous specific

defects in the bid. 

On November 12, 1991, Sierra submitted a Memorandum

to the Commissioner, asserting that it had reason to believe

that Credit Lyonnais and Altus maintained actual control of

the MAAF Group in violation of California Insurance Code

Section 699.5. In 1991, Section 699.5 prohibited entities controlled by foreign governments, like Credit Lyonnais and

Altus, from obtaining certificates of authority from the

Department of Insurance to conduct business in California.5 In

response to the Memorandum, the Commissioner requested

assurances from Credit Lyonnais and Altus that they did not

in fact maintain secret control over the MAAF Group. The

Commissioner received those assurances and conducted no

further investigation. 

5

In 1991, Section 699.5(a) provided: “Except as provided by subdivision (b), a certificate of authority shall not issue to any insurer owned,

operated, or controlled, directly or indirectly, by any other . . . nation or

any governmental subdivision or agency thereof.” In 1994, the California

legislature repealed that general prohibition on foreign ownership of California insurers. Section 699.5(a) now provides: “The ownership or financial control, in part, direct or indirect, of any . . . foreign . . . insurer . . .

or . . . foreign government . . . , shall not, provided the insurer complies

with all other requirements for issuance, renewal, or continuation of a

license, restrict the commissioner from issuing, renewing, or continuing in

effect the license of that insurer to transact in this state the kinds of insurance business for which that insurer is otherwise qualified . . . .” 

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In fact, however, Altus had entered into a conspiracy with

the members of the MAAF Group to circumvent the prohibition on foreign control of California insurers in Section 699.5.

Altus and the MAAF Group agreed to bid for the assets of the

ELIC Estate with the understanding that the MAAF Group

would organize and appear to own New California Life Holdings (NCLH), a newly formed corporation that would reinsure

ELIC insurance policies. The MAAF Group, however, would

operate NCLH for the benefit of Altus, not its members. The

terms of the secret agreements were memorialized in Frenchlanguage contrats de portage. 

On November 14, 1991, the Commissioner determined that

a revised $3.25 billion cash bid from the Altus/MAAF Group

was superior to the Sierra bid and recommended selection of

the Altus/MAAF Group bid to the Rehabilitation Court. The

next day, Altus and MAAF executed a Management Agreement that obligated MAAF, in its capacity as a shareholder of

NCLH, “to act on behalf of Altus . . . and as its agent to help

it to implement its strategic decisions.” Altus and MAAF

agreed not to disclose the agreement to third parties. 

On December 26, 1991, the Rehabilitation Court approved

the Altus/MAAF Group bid, and the sale of the assets of the

ELIC Estate was formalized in a written contract entered

between the Commissioner and the Altus/MAAF Group (the

Rehabilitation Plan). Under the terms of that contract, ELIC

insurance policies assets would be transferred to a new insurance company, Aurora National Life Assurance Company

(Aurora), a subsidiary of NCLH controlled by the MAAF

Group. Third parties challenged the sale in the Rehabilitation

Court. The Commissioner advised the Rehabilitation Court

that the ELIC Estate’s continued ownership of the junk bond

portfolio would jeopardize the security of existing ELIC policies because of the risk associated with those junk bonds. In

order to expedite the sale of the junk bonds, the Commissioner requested that the Rehabilitation Court sever the sale of

the junk bond portfolio from the sale of the ELIC Estate’s

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insurance assets. On February 18, 1992, the Rehabilitation

Court granted the Commissioner’s request. After accepting

bids from third parties, the Rehabilitation Court approved the

sale to Altus, the highest bidder, for approximately $3.25 billion in cash. 

In May 1992, the California Department of Insurance

(DOI) issued a certificate of authority to Aurora, allowing it

to operate as a life insurance company in California. On

August 13, 1993, the Rehabilitation Court approved the Rehabilitation Plan and denied motions to rescind the sale of

ELIC’s junk bond portfolio to Altus. ELIC’s insurance policies were transferred to Aurora in September 1993.6

 Aurora

subsequently brought a tax indemnity claim against the ELIC

Estate, which the Commissioner settled for $75 million. 

B. Artemis’ Acquisition of Altus/MAAF Group’s Interest in

ELIC’s Assets

Artemis did not exist at the time Altus/MAAF Group bid

for the assets of the ELIC Estate. Artemis was formed in

December 1992 as a joint venture between Altus and Financiere Pinault, a French corporation controlled by Francois

Pinault. Under the terms of the agreement, Altus owned 24.5

percent of Artemis, and Financiere Pinault owned 75.5 percent. Francois Pinault became the Chairman of the joint venture. On December 24, 1992, Artemis, Altus and Credit

Lyonnais signed a contract under which Altus sold Artemis

approximately 21 percent of the ELIC junk bond portfolio,

which Altus had acquired nine months earlier. Artemis also

acquired an option to purchase Altus’ interest in Aurora. Arte6The Rehabilitation Plan was subject to extensive litigation in California

courts. See, e.g., In re Executive Life Ins. Co., 32 Cal. App. 4th 344

(1995); Garamendi v. Executive Life Ins. Co., 17 Cal. App. 4th 504

(1993); Commercial Nat’l Bank v. Superior Court, 14 Cal. App. 4th 393

(1993); Texas Commerce Bank v. Garamendi, 11 Cal. App. 4th 460

(1992). 

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mis subsequently exercised that option and obtained approval

from the DOI to acquire a controlling interest in NCLH and

its subsidiary Aurora from the MAAF Group. 

In 1992 or 1993, Artemis learned of the Altus/MAAF

Group’s conspiracy to evade the prohibition in Section 699.5

on foreign entities controlling California insurers. Artemis did

not disclose the conspiracy to the Commissioner. On multiple

occasions, Artemis submitted Form A applications to DOI

that contained false or misleading information regarding both

Artemis’ own interest in Aurora through its option contract

and Altus’s secret control of Aurora through the contrats de

portage with the MAAF Group. 

C. Commissioner’s Complaint and NOLHGA’s Intervention

In January 1999, nearly seven years after the sale of the

junk bond portfolio and issuance of the certificate of authority, the Commissioner learned of the Altus/MAAF Group

conspiracy. Within weeks, in February 1999, the Commissioner sued in California state court, alleging state law claims

against Credit Lyonnais, Altus, MAAF Group corporations,

and senior officers of Altus and MAAF Group corporations.

In February 2000, the Commissioner filed an amended complaint, adding four more defendants: Artemis, Aurora, NCLH,

and Francois Pinault. NOLHGA intervened as a plaintiff to

protect its interests as a losing bidder for the assets of the

ELIC Estate. 

Artemis’ former co-defendants removed the suit to federal

district court. Before trial, the Commissioner settled his

claims against Credit Lyonnais and Altus for $600 million

and his claims against Aurora and NCLH for $80 million.

Default judgments were taken against the MAAF Group

defendants and several French nationals, leaving only Artemis

and Pinault in the suit. Artemis filed a motion for summary

judgment on res judicata grounds, arguing that the Commissioner was barred by the Rehabilitation Court’s approval of

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the Rehabilitation Plan. The district court denied that motion,

and the case proceeded to trial against Artemis and Pinault.

The Commissioner asserted legal claims for intentional misrepresentation, fraudulent concealment and conspiracy to

commit fraud and equitable claims for unjust enrichment,

constructive trust and accounting. The district court bifurcated

the trial into a liabilities phase and a damages phase. 

D. Jury Verdicts, Post-Trial Orders and Equitable Relief

On May 10, 2005, after nine weeks of evidence in the liability phase of the trial, the jury returned seven special verdict

forms. The jury exonerated Pinault on all claims (Forms 2, 4,

and 6). The jury found that Artemis made false representations to and concealed important facts from the Commissioner, but that the misrepresentation and concealment were

not a substantial factor in causing harm to the ELIC Estate

(Forms 1 and 3). The jury found that Artemis joined the

Altus/MAAF Group conspiracy and that the conspiracy

caused harm to the ELIC Estate (Form 5). The jury deadlocked on Form 7, which posed what was referred to as the

“NOLHGA Premise”: “Did the Commissioner prove that, but

for the misrepresentation, concealment or conspiracy that led

to your answers to previous questions, he probably would

have entered into a transaction with NOLHGA for the benefit

of the ELIC Estate?” The district court delivered an Allen

charge;7 however, the jury informed the court that it remained

“hopelessly deadlocked” on the NOLHGA Premise. 

On June 10, 2005, the district court entered a Post-Verdict

Order reconciling the verdicts. The district court found that

Artemis was not legally liable for intentional misrepresentation or concealment because the jury found that neither

7The term “Allen charge” is the generic name for a class of supplemental jury instructions given when jurors are apparently deadlocked; the

name derives from the Supreme Court’s approval of such an instruction

in Allen v. United States, 164 U.S. 492, 501-02 (1896). 

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caused harm to the ELIC Estate, but that Artemis was liable

for participating in the Altus/MAAG Group conspiracy,

which the jury found did harm the ELIC Estate. The court

construed the jury’s inability to return a verdict on Form 7 as

a failure of proof and prohibited the Commissioner from proffering evidence in support of the NOLHGA Premise in the

damages phase of trial. 

On July 21, 2005, the jury returned two verdict forms after

hearing a week of evidence in the damages phase. The jury

awarded the Commissioner “$0” in compensatory damages

and $700 million in punitive damages. On October 3, 2005,

the district court entered an Order Re Punitive Damages,

invalidating the punitive damages award under California law

and the Due Process Clause. The district court then heard the

Commissioner’s equitable claims and awarded him $241 million in restitution on February 13, 2006. The district court

denied Artemis’ motion to offset that award against settlements made by Artemis’ co-defendants. The Commissioner

and NOLHGA timely appealed. Artemis cross-appealed. 

II

A. Order Re Punitive Damages

The Commissioner and NOLHGA appeal the district

court’s Order Re Punitive Damages, which vacated the jury’s

award of $700 million in punitive damages. The Commissioner presented two theories in the damages phase of trial:

first, the ELIC Estate would not have paid $75 million to settle an indemnity claim brought by Aurora because the Commissioner would have selected a “bonds-in” bid but for the

Altus/MAAF Group conspiracy; and second, the ELIC Estate

would have profited from the recovery of its junk bond portfolio had it not lost the opportunity to rescind the sale of that

portfolio to Altus as a result of the Altus/MAAF Group conspiracy. After hearing a week of evidence, the jury returned

two verdicts. In Damages Verdict Form A, the jury awarded

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the Commissioner “$0” in compensatory damages under each

of the Commissioner’s damages theories. In Damages Verdict

Form B, the jury awarded the Commissioner $700 million of

punitive damages, finding that Artemis “participat[ed] in the

conspiracy or scheme that caused harm to the Commissioner,”

and that Artemis “acted with malice, oppression, or fraud.”

The district court vacated the punitive damages award under

California law and the Due Process Clause. 

We review the district court’s interpretation of California

law and its determination of the constitutionality of punitive

damages de novo. See Cooper Indus. v. Leatherman Tool

Group, Inc., 532 U.S. 424, 436 (2001); Rabkin v. Or. Health

Scis. Univ., 350 F.3d 967, 970 (9th Cir. 2003). “Exacting

appellate review ensures that an award of punitive damages is

based upon an application of law, rather than a decisionmaker’s caprice.” State Farm Mut. Auto. Ins. Co. v. Campbell,

538 U.S. 408, 418 (2003) (internal quotation marks omitted);

In re Exxon Valdez, 270 F.3d 1215, 1239 (9th Cir. 2001)

(“[A] hands-off appellate deference to juries, typical of other

kinds of cases and issues, is unconstitutional for punitive

damages awards.”) (citing Honda Motor Co. v. Oberg, 512

U.S. 415, 432 (1994)). 

[1] Under California law, “where it is proven by clear and

convincing evidence that the defendant has been guilty of

oppression, fraud, or malice, the plaintiff, in addition to the

actual damages, may recover damages for the sake of example

and by way of punishing the defendant.” CAL. CIV. CODE

§ 3294(a). California courts have long interpreted Section

3294 to require an award of compensatory damages, even if

nominal, to recover punitive damages. As the California

Supreme Court has stated:

The foundation for the recovery of punitive or exemplary damages rests upon the fact that substantial

damages have been sustained by the plaintiff. Punitive damages are not given as a matter of right, nor

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can they be made the basis of recovery independent

of a showing which would entitle the plaintiff to an

award of actual damages. Actual damages must be

found as a predicate for exemplary damages. This is

the rule announced in many authorities. 

Mother Cobb’s Chicken Turnovers, Inc. v. Fox, 10 Cal. 2d

203, 205 (1937). (internal quotation marks and citation omitted); see, e.g., Kizer v. County of San Mateo, 53 Cal. 3d 139,

147 (1991) (“In California, as at common law, actual damages

are an absolute predicate for an award of exemplary or punitive damages.”); Sole Energy Co. v. Petrominerals Corp., 128

Cal. App. 4th 212, 238 (2005) (“An award of actual damages,

even if nominal, is required to recover punitive damages.”);

Cheung v. Daley, 35 Cal. App. 4th 1673, 1677 (1995) (invalidating punitive damages award where jury awarded $0 compensatory damages); Jackson v. Johnson, 5 Cal. App. 4th

1350, 1357-58 (1992) (invalidating punitive damages award

where the jury “assess[ed] damages in the sum of 0 dollars.”).

[2] Although the numbers in this case are breathtaking, California law is well-established and quite clear. Where the jury

here explicitly found “$0” of compensatory damages, the general rule precludes punitive damages. See Mother Cobb’s

Chicken Turnovers, Inc., 10 Cal. 2d at 206. The $0 figure

assessed by the jury is striking because the district court

clearly instructed the jury on the availability of nominal damages: “If you find for the plaintiff but you find that the plaintiff has failed to prove damages as defined in these

instructions, you must award nominal damages.” The jury

explicitly declined to award nominal damages, instead awarding “$0” compensatory damages as urged by counsel for Artemis. The California rule that might authorize $700 million in

punitive damages if the jury awards $1, but no punitive damages if the jury awards nothing, may seem harsh. But the rule

is no less a rule when it prohibits large punitive awards than

when it prohibits much smaller punitive awards. And, morePOIZNER v. ARTEMIS S.A. 11635

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over, the rule is clear—unless the jury awards at least nominal

damages, a plaintiff may not recover punitive damages.

The Commissioner and NOLHGA argue that, notwithstanding the clarity of the jury’s award of “$0” in compensatory damages, the Commissioner established sufficient harm

in other ways to satisfy the predicate of actual damages necessary to sustain the jury’s $700 million punitive damages

award. They offer two theories: (1) the jury found that Artemis’ participation in the Altus/MAAF Group’s conspiracy

caused harm to the ELIC Estate in Form 5 in the liability

phase of trial; and (2) the district court subsequently awarded

the Commissioner $241 million in restitution based in part on

Artemis’ participation in the Altus/MAAF Group conspiracy.

1. Finding of Harm in Verdict Form 5

The Commissioner argues that a finding of injury, not an

award of compensatory damages, is all that California law

requires to sustain an award of punitive damages. See Gagnon

v. Cont’l Cas. Co., 211 Cal. App. 3d 1598, 1603 n.5 (1989)

(“[A]n actual award of compensatory damages is not necessary; rather the plaintiff need only prove that he or she suffered damages or injury.”). Here, in returning a verdict on

Form 5, the jury expressly found that: (1) Altus agreed “to

participate in a common scheme to obtain assets from the

ELIC Estate by fraud” with the MAAF Group; (2) Artemis

became aware of that common scheme; (3) Artemis agreed to

participate with the Altus/MAAF Group “in furtherance of

that scheme, knowing its wrongful objective and before the

scheme was accomplished”; and (4) the scheme caused harm

to the ELIC estate. The Commissioner contends that finding

of “harm” satisfies the predicate of actual damages necessary

to sustain the punitive damages award, irrespective of the

jury’s subsequent award of “$0” compensatory damages. 

The Commissioner’s reliance on Gagnon is misplaced. In

Gagnon, the California Court of Appeal held that a plaintiff

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who was statutorily ineligible to receive compensatory damages was nonetheless entitled to punitive damages reasonably

related to actual harm suffered. 211 Cal. App. 3d at 1603-05.

The Court of Appeal reaffirmed that “[i]t is settled that punitive damages cannot be awarded unless actual damages are

suffered,” id. at 1603 n.5, but noted that awarding punitive

damages as a multiple of actual damages “becomes troublesome, if not unworkable, where, as here, the plaintiff is not

entitled to an award of compensatory damages; or where the

plaintiff obtains only equitable relief; or where the plaintiff

recovers only nominal damages.” Id. at 1604 (internal citations omitted). By shifting “the focus [to] the plaintiff’s injury

rather than the amount of compensatory damages, the rule can

be applied even in cases where only equitable relief is

obtained or where nominal damages are awarded or, as here,

where compensatory damages are unavailable.” Id. at 1605.

The Commissioner has not persuaded us that the reasoning of

Gagnon should extend to this case where compensatory damages, even nominal damages, were legally available and

explicitly sought by the Commissioner. 

[3] Further, the California Court of Appeal squarely foreclosed the Commissioner’s argument in Cheung v. Daley, 35

Cal. App. 4th 1673 (1995). The issue presented in that case

was “whether a jury can award exemplary damages when it

has expressly determined that the plaintiffs were entitled to

“0.00” compensatory damages.” Id. at 1674. The Court of

Appeal answered “No.” Id. In Cheung, a jury found by special

verdict that “the total amount of compensatory damages to

which all Plaintiffs are entitled [was] $0.00,” and that “in

making the [fraudulent] transfers of [the two properties the

defendant] acted with fraud, oppression or malice,” for which

the jury awarded plaintiffs exemplary damages of $92,000. Id.

at 1675. The Court of Appeal reversed the punitive damages

award:

[T]he rule of Mother Cobb’s Chicken—that an

award of exemplary damages must be accompanied

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by an award of compensatory damages—is still

sound. That rule cannot be deemed satisfied where

the jury has made an express determination not to

award compensatory damages. 

Id. at 1677 (citing Mother Cobb’s Chicken Turnovers, Inc., 10

Cal. 2d at 205). Here, the jury’s award of “$0” in compensatory damages established that, notwithstanding the “harm”

found in Form 5, the Commissioner did not suffer the “actual

damages” necessary to sustain the jury’s punitive damages

award. 

2. Award of Restitution

In the alternative, the Commissioner argues that the district

court’s grant of restitution, awarded in equity, provides an

independent basis for upholding the jury’s award of punitive

damages awarded in law. See Ward v. Taggart, 51 Cal. 2d

736, 743 (1959) (holding that “[exemplary] damages are

appropriate in cases . . . where restitution would have little or

no deterrent effect, for wrongdoers would run no risk of liability to their victims beyond that of returning what they

wrongfully obtained”); see also Gagnon, 211 Cal. App. 3d at

1604 (finding that awarding punitive damages as a multiple of

actual damages “becomes troublesome, if not unworkable,

where . . . the plaintiff obtains only equitable relief”). The

Commissioner’s argument proves too much. 

[4] In Ward, plaintiffs made offers of $4,000 and $5,000

per acre to purchase land. 51 Cal. 2d at 740. The defendant,

plaintiffs’ real estate broker, had purchased the land secretly

at $4,000 per acre and then resold it to plaintiffs at $5,000 per

acre, retaining $1,000 per acre of profit. A jury awarded the

plaintiffs approximately $72,000 in compensatory damages

and $36,000 in exemplary damages. Id. The California

Supreme Court reversed the award of compensatory damages,

finding that the plaintiffs had suffered no “out-of-pocket”

damages because the fair market value of the land was at least

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$5,000 per acre;8

 however, the court awarded the plaintiffs

equitable relief of $1,000 per acre to prevent unjust enrichment of the defendant. Id. at 741-42 (citing CAL. CIV. CODE

§ 3517 (“No one can take advantage of his own wrong.”)).

The defendant argued that the award of exemplary damages

could not stand absent an award of compensatory damages.

The court held that the award of restitution provided a sufficient predicate to sustain the award of exemplary damages. It

reasoned:

Courts award exemplary damages to discourage

oppression, fraud, or malice by punishing the wrongdoer. Such damages are appropriate in cases like the

present one, where restitution would have little or no

deterrent effect, for wrongdoers would run no risk of

liability to their victims beyond that of returning

what they wrongfully obtained. 

Id. at 743 (internal citations omitted); see also Topanga Corp.

v. Gentile, 249 Cal. App. 2d 681, 691 (1967) (“Exemplary

damages are proper in cases involving fraud and are awarded

to discourage the same by way of punishing the wrongdoer.”

(internal quotation marks and citations omitted)). 

[5] Ward is distinguishable on two grounds. First, Ward,

like Gagnon, is a case where the compensatory damages

sought by the plaintiff were legally unavailable. Here, lost

profit compensatory damages were legally available and

8At the time the California Supreme Court decided Ward, Civil Code

Section 3343, addressing damages for fraud in the sale of property,

allowed recovery of “out-of-pocket” losses only, not lost profits. See

Ward, 51 Cal. 2d at 740. The California Legislature subsequently

amended Section 3343 to permit recovery of lost profits for fraud in the

sale of property, obviating the need for the Court’s “ingenious innovation”

of permitting a restitution award to satisfy the predicate for exemplary

damages. Id. at 744 (Schauer, J., concurring and dissenting); see also

Channell v. Anthony, 58 Cal. App. 3d 290, 308-18 (1976) (discussing the

history of Section 3343 and applying that section as amended). 

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explicitly sought by the Commissioner, yet the jury declined

to award even nominal compensatory damages. Second, the

jury in Ward found that all of the elements of fraud, including

harm, were proven against the defendant. Here, the jury found

in Verdict Forms 1 and 3 that Artemis intentionally misrepresented and concealed material facts; however, it also found

that neither the misrepresentation nor the concealment harmed

the ELIC Estate. As a result, Artemis had no legal liability for

its own misrepresentation or concealment. 

[6] The Commissioner sought restitution based on the same

record evidence of Artemis’ intentional misrepresentation and

concealment. The district court ultimately awarded restitution

calculated to disgorge only a portion of the profit that the

Commissioner sought as compensatory damages. Permitting

the restitution award in this case to serve as a predicate for the

jury’s punitive damages award would cast doubt on the equity

in the district court’s award and would potentially result in a

windfall to the Commissioner.9 We conclude that California

courts would not extend the reasoning of Ward to permit restitution to serve as the predicate for punitive damages where a

defendant is not legally liable for fraud and a jury has

expressly awarded “$0” in compensatory damages. 

[7] We affirm the district court’s Order Re Punitive Damages, vacating the jury’s $700 million punitive damages

award. Because the punitive damages award is invalid under

California law, we decline to consider whether that award also

violates the Due Process Clause. 

9The Commissioner’s suggestion would yield him some $941 million,

vastly in excess of either the jury award or the district court’s award of

restitution. Realizing the dilemma his argument creates, the Commissioner

concedes: “Because the punitive damages award rests on the same principles on which the district court awarded restitution, the Commissioner is

willing to forego the restitution award if the jury’s punitive damage[s]

award is fully reinstated.” Appellant Garamendi’s Opening Brief at 36.

The Commissioner’s offer to substitute the punitive award for the restitutionary award puts the Commissioner into precisely the position he was in

when the jury awarded him punitive damages in the first place. 

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B. Post-Verdict Order 

The Commissioner and NOLHGA appeal the district

court’s Post-Verdict Order, which prohibited the Commissioner from proffering the NOLHGA Premise in the damages

phase of the trial. They allege that the district court improperly reconciled the special verdict forms answered by the jury

and improperly construed the jury’s inability to answer Form

7 as a failure of proof with respect to the NOLHGA Premise.

The Commissioner and NOLHGA argue that, properly reconciled, the verdict forms answered by the jury conclusively

establish the NOLHGA Premise, rendering Form 7 superfluous. In the alternative, they request a limited remand for a

new damages phase trial on the NOLHGA Premise.10

We review de novo the district court’s reconciliation of the

special verdict forms returned by the jury. See Wilks v. Reyes,

5 F.3d 412, 415 (9th Cir. 1993). “[T]he court must search for

a reasonable way to read the verdicts as expressing a coherent

view of the case . . . . The consistency of the jury verdict must

be considered in light of the judge’s instructions to the jury.”

Toner v. Lederle Labs., 828 F.2d 510, 512 (9th Cir. 1987); see

Gallick v. Baltimore & Ohio R.R. Co., 372 U.S. 108, 119

(1963). In reconciling answered verdict forms, no inference

may be drawn from the jury’s failure to answer a verdict

form. See Iacurci v. Lummus Co., 387 U.S. 86, 87-88 (1967)

(per curiam). The court may properly enter judgment only if

10The Commissioner and NOLHGA opposed a mistrial after the liability

phase of the trial, arguing instead that they should be permitted to proffer

the NOLHGA Premise to the jury again in the damages phase. As a result,

Artemis argues that the Commissioner and NOLHGA waived their right

to seek a new trial on the NOLHGA Premise. We disagree. The Commissioner and NOLHGA preserved their arguments in bench briefs filed with

the district court after the liabilities phase. In addition, the Commissioner

filed a Writ of Mandamus with the Ninth Circuit, seeking reversal of the

Post-Verdict Order, Garamendi v. United States Dist. Ct., No. 05-73652

(9th Cir. June 27, 2005) (denying mandamus), and NOLHGA filed a

motion for reconsideration of the Post-Verdict Order. 

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the answered verdict forms conclusively dispose of the issues

submitted to the jury. See Skyway Aviation Corp. v. Minneapolis Northfield and S. Ry. Co., 326 F.2d 701, 704 (8th Cir.

1964) (“The failure to agree on the unanswered interrogatory

did not vitiate the otherwise unanimous verdict effectively

disposing of the issues submitted.”). If the answered verdict

forms do not dispose of all the issues submitted to the jury,

the court must either resubmit the unanswered verdicts to the

same jury or declare a mistrial with respect to the unresolved

issues. See Union Pac. R.R. Co. v. Bridal Veil Lumber Co.,

219 F.2d 825, 832 (9th Cir. 1955) (“To do other than send the

case back for a new trial when decision on a vital issue by the

jury is missing would deprive the parties of the jury trial to

which they are entitled constitutionally.”); Loughridge v.

Chiles Power Supply Co., Inc., 431 F.3d 1268, 1287-88 (10th

Cir. 2005); see also Duk v. MGM Grand Hotel, Inc., 320 F.3d

1052, 1058 (9th Cir. 2003) (holding that “when the jury is still

available, resubmitting an inconsistent verdict best comports

with the fair and efficient administration of justice”). 

By contrast, whether to enter judgment consistent with the

answered verdict forms, to resubmit an unanswered verdict

form to the same jury or to order a new trial with respect to

the unresolved issues is within the discretion of the district

court. See Wilks, 5 F.3d at 415; Union Pac. R.R. Co., 219 F.2d

at 831 (“[I]t is peculiarly the function of the trial judge to

decide whether to discharge the jury or, within the limits of

legitimate wheedling, try to get the jurors to agree on an

answer.”). Accordingly, we review the district court’s PostVerdict Order, exclusive of the verdict reconciliation, for

abuse of discretion. Id. 

After hearing nine weeks of evidence in the liabilities phase

of the trial, the district court submitted the special verdict

forms to the jury pursuant to Federal Rule of Civil Procedure

49(a). After three weeks of deliberation, the jury informed the

district court that there was one verdict form on which it

could not agree. The district court asked the jury whether it

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considered the seven answered verdict forms final. The jury

responded “yes” and delivered seven signed and sealed verdict forms. The district court then gave an Allen charge. The

jury reported that it was “hopelessly deadlocked” on the

remaining verdict form, and the district court unsealed and

read the answered verdicts. 

1. Verdict Forms 1, 3, 5

In Forms 1 and 3, the jury found that Artemis engaged in

intentional misrepresentation and concealment, and that the

Commissioner relied on that misrepresentation and concealment, but that Artemis’s conduct did not harm the ELIC

Estate. Without a finding of harm, the jury’s answers to

Forms 1 and 3 did not constitute complete findings of liability. In Form 5, the jury found that the Altus/MAAF Group

entered a common scheme to defraud the Commissioner; that

Artemis acted in furtherance of that scheme; and that the

scheme caused harm to the ELIC Estate. The jury’s answer to

Form 5 constituted a complete finding of liability. As a result,

the district court properly ordered a damages phase of trial,

limited to quantification of any damages caused by the conspiracy found in Form 5.11

2. Verdict Form 7

The jury was unable to answer Form 7, which posed the

NOLHGA Premise: “Did the Commissioner prove that, but

for the misrepresentation, concealment or conspiracy that led

to your answers to previous questions, he probably would

have entered into a transaction with NOLHGA for the benefit

11In Forms 2 and 4 the jury found that Pinault did not make a false representation or intentionally fail to disclose an important fact to the commissioner; in Form 6 the jury found that Pinault did not know of the Altus/

MAAF Group conspiracy to obtain assets from the ELIC Estate by fraud.

The Commissioner has not appealed the judgment dismissing the claims

against Pinault. 

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of the ELIC Estate?” Unlike Forms 1, 3, and 5, which presented the jury with theories of liability, Form 7 presented a

theory of damages that would have permitted the Commissioner to recover lost profits as compensatory damages in the

second phase of the trial. Form 7 was not essential to a finding of liability, and the parties agree that Form 7 could have

been presented to the jury for the first time in the damages

phase of the trial.12

In addition to Form 7, the NOLHGA Premise was incorporated into two jury instructions in the liability phase, Instructions 23 and 25,13 which defined “reliance” and “harm” to the

12The Commissioner proposed Form 7 to satisfy his burden of proving

that he would have obtained a profit but for the defendant’s conduct,

which is a predicate to receipt of lost profits as compensatory damages

under California law. See Kids’ Universe v. In2Labs, 95 Cal. App. 4th

870, 883-84 (2002). 

13Instruction No. 23: Reliance

The Commissioner relied on a misrepresentation or concealment

if it caused him to: 

(A) select the Altus/MAAF bid instead of the NOLHGA bid

and submit the Altus/MAAF bid to the Rehabilitation Court for

approval and 

(B) also caused him to do at least one of the following: 

(1) transfer either the junk bond portfolio or the insurance

assets of ELIC; or 

(2) not challenge the right of an entity to retain possession

of either the junk bond portfolio or the insurance assets of

ELIC. 

Instruction 25: Establishing Harm

The Commissioner claims that the ELIC Estate was harmed by

his selecting the Altus/MAAF bid instead of the NOLHGA bid.

In order to find that the Commissioner was harmed, you must

determine whether the Commissioner would have agreed to the

NOLHGA bid had the alleged fraud not occurred and whether the

Commissioner’s acceptance of the Altus/MAAF bid caused the

ELIC Estate to incur losses, costs or expenses that the ELIC

Estate would not otherwise have incurred if the Commissioner

had picked a “bonds in” bid. 

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ELIC Estate in terms of causing the Commissioner to select

“the Altus/MAAF bid instead of the NOLHGA bid.” Instruction 30, which defined the elements of conspiracy, however,

contained a separate reference to harm that did not crossreference Instruction 25: “The Commissioner claims that he

was harmed by the [Altus/MAAF Group] that allegedly conspired to, and did obtain, ELIC’s junk bonds and insurance

business through fraud.”

14 The district court orally instructed

the jury that the set of instructions with “special application

to the claim of intentional misrepresentation happens to be

instructions 20 through 27,” while the “conspiracy instructions are basically grouped in numbers 30 through 32.”

15

3. Verdict Reconciliation 

The district court found that the verdicts could be reconciled. It held that “the structure and language of the instructions permit the inference that the jury reasonably could and

14Instruction No. 30: Conspiracy-Essential Elements

The Commissioner claims that he was harmed by the following

companies that allegedly conspired to, and did obtain, ELIC’s

junk bonds and insurance business through fraud: Altus/Credit

Lyonnais, MAAF, Omnium Geneve, SDI Vendome, and Financiere de Pacifique (Finapaci). The Commissioner contends that

Artemis and Pinault are responsible for the harm because they

joined those companies’ alleged conspiracy to commit this fraud.

15The district court’s oral instructions to the jury were: 

You may wish to remember that the set of jury instructions that

have special application to the claim of intentional misrepresentation happens to be instructions 20 through 27. So when you’re

trying to think of what your own position is and listen to your fellow jurors’ position, you may want to have that set of pages from

the jury instructions right out there, because they will tell you and

use some of the very same language as the verdict form. 

. . . 

Now, conspiracy instructions are basically grouped in numbers

30 through 32 of the jury instructions. You may wish to keep that

in mind. 

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did conclude that the definition of ‘harm’ for . . . Verdict

Forms 1 and 3 (Instruction 25) was not applicable to Verdict

Form 5 (Instruction 30)”; “the jury’s responses to Verdict

Forms 1 and 3 [finding no harm to the Commissioner] reflect

that it found that the Commissioner did not prove that he

would have picked the NOLHGA bid—as opposed to the

Sierra bid—had Artemis not made a false representation and

concealed a material fact”; “[t]hat is the same reason that [the

jury] could not answer “yes” to Verdict Form 7; “in answering Verdict Form 5, the jury apparently and reasonably

applied a broader notion of harm than that defined in Instruction 25 for the fraud claims—namely, that the scheme caused

the Commissioner not to choose one of the bonds-in bids

(either NOLHGA or Sierra).” The district court concluded:

“Having found no harm in Verdict Forms 1 and 3, because the

Commissioner had not proven that he would have picked the

NOLHGA bid had he not relied on Artemis’s misrepresentation and concealment, the jury again (and not surprisingly)

was unable to find that the Commissioner would have picked

the NOLHGA bid absent the scheme in Verdict Form 7.” 

The district court improperly construed the unanswered

Form 7 as a failure of proof on the NOLHGA Premise. The

cases are clear that no legal significance attached to the jury’s

failure to answer Form 7, and the district court should not

have considered Form 7 when reconciling the answered verdict forms.16 See Iacurci, 387 U.S. at 87. “[I]t was error in the

16The Commissioner and NOLHGA argue that the court granted a de

facto judgment as a matter of law (JMOL) in favor of Artemis. See

Romanski v. Detroit Entm’t, L.L.C., 428 F.3d 629, 636 (6th Cir. 2005)

(holding that the trial court “took the . . . issue out of the case, granting

in effect judgment as a matter of law”). The district court’s evaluation of

the evidence informed its reconciliation of the verdicts: 

The testimony given by the Commissioner Garamendi and his

lieutenants as to why and how NOLHGA would have gotten the

nod if Altus had not was so flatly at odds with what Mr. Garamendi said (and his aides did) in 1991 and thereafter as to be

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face of the unanswered question for the trial court to thereafter ‘go it alone’ and dispose of the [issue].” Union Pac. R.R.

Co., 219 F.2d at 831-32. Moreover, it is difficult to accept the

district court’s reasoning in light of Form 7. If the jury had

found no harm in Forms 1 and 3 because it found that the

Commissioner would not necessarily have awarded NOLHGA the bid, then the jury should have easily answered “no”

on Form 7. That the jury could not do so suggests that the jury

had something else in mind, even if it was only confusion. 

Although we disagree with the district court that the verdicts compel judgment for Artemis, we also disagree with the

Commissioner and NOLHGA that the verdicts must be reconciled in their favor. The Commissioner and NOLHGA argue

that Form 7 was superfluous because the jury conclusively

found in favor of the NOLHGA Premise in their answer to

Form 5. They reason that, in Form 5, the jury found that Artemis’ participation in the Altus/MAAF Group conspiracy

caused harm to the ELIC Estate; Instruction 25 provided the

only definition of harm in the jury instructions; and Instruction 25 defined harm in terms of the NOLHGA Premise. We

are not persuaded. As the district court found, the jury could

have reasonably believed that Instruction 30, which was the

instruction on proving harm resulting from conspiracy, was

broader than the definition in Instruction 25, which was the

instruction on harm for intentional misrepresentation and concealment. Because Instruction 30 did not depend on the NOLHGA Premise, the jury could have found harm if it concluded

that the Commissioner would have entered a transaction with

devoid of credibility. For that reason, I am convinced that no fairminded jury would ever unanimously adopt the Commissioner’s

2005 version of history. Indeed, if the NOLHGA Premise were

the basis of a Rule 50(b)(2) motion later on, I would grant it. 

Despite that statement, the district court denied Artemis’s motion for

JMOL. Without the benefit of a reasoned decision on that motion from the

district court, we decline the Commissioner and NOLHGA’s invitation to

review the Post-Verdict Order as a de facto JMOL. 

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either of the “bonds-in” bidders, NOLHGA or Sierra, but for

the Altus/MAAF Group conspiracy. 

Even if the jury applied the definition of harm in Instruction 25 in answering Form 5, a reasonable application of that

instruction would have permitted the jury to find harm without accepting the NOLHGA Premise. Instruction 25 stated:

The Commissioner claims that the ELIC Estate was

harmed by his selecting the Altus/MAAF bid instead

of the NOLHGA bid. In order to find that the Commissioner was harmed, you must determine whether

the Commissioner would have agreed to the NOLHGA bid had the alleged fraud not occurred and

whether the Commissioner’s acceptance of the Altus/

MAAF bid caused the ELIC Estate to incur losses,

costs or expenses that the ELIC Estate would not

otherwise have incurred if the Commissioner had

picked a “bonds in” bid (emphasis added). 

Ordinarily, when the word “and” appears in a list of requirements, it is conjunctive and indicates that all requirements

must be satisfied. If, for example, the instructions had read

“In order to find that the Commissioner was harmed, you

must find that the Commissioner would have accepted the

NOLHGA bid and that the Commissioner would have

incurred losses, costs or expenses . . . ,” then the Commissioner would have a strong argument. But Instruction 25

directed the jury to “determine” two questions; it instructed

the jury to answer the questions, not to link them. We think

a better reading of the instruction would have allowed the jury

to find the Commissioner was harmed if it determined either

that the Commissioner would have accepted the NOLHGA

bid or that the Commissioner would have incurred losses,

costs or expenses that the ELIC Estate would not otherwise

have incurred if the Commissioner had picked a “bonds in”

bid. NOLHGA and Sierra both submitted “bonds in” bids.

Thus, the jury could have found “losses, costs or expenses”

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causing “harm” in Form 5 if it concluded that, but for the

Altus/MAAF Group’s conspiracy, the Commissioner would

have selected either the Sierra or the NOLHGA bid. Because

we cannot determine which of these conditions the jury found,

the answered verdict forms do not establish the NOLHGA

Premise conclusively. 

[8] We thus conclude that, despite the district court’s best

efforts, the verdicts cannot be reconciled in favor of either

side. The jury might have answered Form 7 in favor of either

party. Since we cannot infer anything from the jury’s silence,

we are left with an indeterminate verdict. 

4. Remedy

[9] The NOLHGA Premise was the Commissioner’s principal damages theory and a vital issue in the trial. The jury’s

failure to answer Form 7 “left a gaping hole in the special verdict.” Union Pac. R.R. Co., 219 F.2d at 831. “To do other than

send the case back for a new trial when decision on a vital

issue by the jury is missing would deprive the parties of the

jury trial to which they are entitled constitutionally.” Id. at 832.17

We reverse the Post-Verdict Order and remand for a new

damages phase trial limited to proffer of the NOLHGA Premise and a determination of damages (including punitive damages), if any, on that theory. See id.; Furr v. AT&T Techs.,

Inc., 824 F.2d 1537, 1545 (10th Cir. 1987) (“When special

17Artemis argues that resubmission of Form 7 to the jury in the damages

phase after delivery of an Allen charge in the liabilities phase would have

resulted in impermissible compulsion. See Duk, 320 F.3d at 1058

(“Resubmission . . . leaves open the possibility that the jury will reach an

improper ‘compromise’ verdict[; h]owever, we presume that citizen jurors

will properly perform the duties entrusted them and will not construe

resubmission as an invitation to subvert the law and contort findings of

fact in favor of a desired result.”). On remand, the NOLHGA Premise will

be posed to a new jury. As a result, the question of whether resubmission

of Form 7 to the same jury after delivery of an Allen charge would have

constituted impermissible compulsion is not before us. 

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interrogatories are submitted to a jury under Fed. R. Civ. P.

49(a) and the jury’s responses do not provide an answer on a

vital issue, then remand for a new trial is appropriate, at least

as to the unresolved issue.”); see also Iacurci, 387 U.S. at 87-

88.

III

A. Restitution Award of $241 million

Artemis cross-appeals the district court’s award of $241

million in restitution, arguing that the Commissioner had an

adequate legal remedy, that the Commissioner failed to establish the elements for unjust enrichment and that the existence

of an enforceable contract prohibits an award of unjust enrichment. In addition, Artemis argues that any award of restitution

should be offset by settlements made by Artemis’ coconspirators under California Code of Civil Procedure Section

877. 

[10] The district court calculated restitution in light of the

jury’s verdicts in the damages phase of the trial, which

excluded proffer of the NOLHGA Premise. Because we

remand for a new damages phase trial, we vacate the award

of restitution. We grant the district court leave to reinstate that

award, if warranted, at the close of trial. We decline to

address the merits of Artemis’ objections to the restitution

award or to consider whether the offset provisions of Section

877 would apply to any restitution award made by the district

court upon remand. 

B. Denial of Summary Judgment on Res Judicata Grounds

Artemis appeals the district court’s denial of its motion for

summary judgment under principles of res judicata. Artemis

argues that the Commissioner’s claims are an impermissible

collateral attack on the Rehabilitation Plan, which was

approved by the Rehabilitation Court on August 13, 1993. 

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In 1993, the “central issue before the court” was whether

the Rehabilitation Plan was “fair, equitable, nondiscriminatory and not arbitrary and provides opt outs with

value equal to or greater than their ratable share of the current

liquidation value of all of ELIC’s assets at closing.” The court

also heard motions to rescind the sale of ELIC’s junk bond

portfolio to Altus on grounds of impossibility, mutual mistake, failure of consideration and breach of fiduciary duty.

The Rehabilitation Court approved the Rehabilitation Plan

and denied the motion for rescission. As a result of the Rehabilitation Court’s in rem jurisdiction over the ELIC Estate,

“[a]ll parties were forever enjoined from making any complaint with respect to the [Rehabilitation Plan] or any provisions thereof,” and “even though the causes of action [are]

different, the prior determination of an issue is conclusive in

a subsequent suit between the same parties as to that issue and

every matter which might have been urged to sustain or defeat

its determination.” Pac. Mut. Life Ins. Co. v. McConnell, 44

Cal. 2d 715, 724-25 (1955). 

The Commissioner and NOLHGA were both parties to the

Rehabilitation Court proceedings; however, the Commissioner did not learn of the Altus/MAAF conspiracy until

1999, six years after judicial approval of the Rehabilitation

Plan. As a result, the issue of conspiracy liability was not litigated before the Rehabilitation Court. Res judicata would not

bar the Commissioner’s claims unless we accept Artemis’

characterization of this litigation as a collateral attack on the

Rehabilitation Plan. 

Artemis relies principally on In re Met-L-Wood Corp., a

Seventh Circuit bankruptcy case, in support of that characterization. 861 F.2d 1012 (7th Cir. 1988). In that case, a trustee

in bankruptcy filed a Federal Rule of Civil Procedure 60(b)

motion to vacate a judgment confirming the judicial sale of a

bankrupt corporation’s assets. The trustee alleged a bidrigging scheme to defraud the bankrupt corporation’s unsecured creditors. The bankruptcy court denied the motion as

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untimely. The trustee filed a complaint in federal district court

seeking damages for fraud. The Seventh Circuit affirmed dismissal of that complaint on res judicata grounds, reasoning:

“by seeking heavy damages from the seller, the purchaser, the

purchaser’s purchaser . . . , a law firm involved in the transaction, and the secured creditors that benefitted from the sale,

the suit is a thinly disguised collateral attack on the judgment

confirming the sale.” Id. at 1018. 

[11] Artemis argues by analogy: “By seeking to recover

Artemis’ profits, the Commissioner effectively seeks to revise

the carefully articulated profit participation provisions of the

Rehabilitation Plan that was approved by the Rehabilitation

Court.” Appellee’s Reply Brief at 17.18 We are not persuaded

that the Commissioner’s legal and equitable claims seeking

disgorgement of Artemis’ profit obtained through participation in the Altus/MAAF Group conspiracy to defraud the

Commissioner are equivalent to revision of contractual profit

participation terms embodied in the Rehabilitation Plan. The

Commissioner does not seek rescission or modification of the

Rehabilitation Plan; he seeks only to hold Artemis personally

liable in law and equity for Artemis’s intentional misrepresentation, concealment and participation in the Altus/MAAF

Group conspiracy to defraud the Commissioner. Under the

circumstances of this case, we conclude that the California

Supreme Court would not construe the Commissioner’s

claims as a collateral attack on the Rehabilitation Plan. The

district court properly denied Artemis’ motion for summary

judgment on res judicata grounds. 

18California recognizes the public policy interest in finality of courtauthorized sales in insurance rehabilitation proceedings. As stated by the

Rehabilitation Court, “[A] lack of finality would chill sales of estate

assets, as no one would bid for such assets if a sale could be undone

months or even years later, simply because the asset in question had

appreciated.” See also In re Met-L-Wood Corp., 861 F.2d at 1019. California also recognizes, however, a strong public policy interest in preventing

a party from benefitting from his own fraud. See, e.g., CAL. CIV. CODE

§ 3517 (“No one can take advantage of his own wrong.”). 

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IV

We affirm the entry of judgment in favor of Artemis on the

claims for intentional misrepresentation and concealment. We

reverse the Post-Verdict Order and remand for a new damages

phase trial limited to proffer of the NOLHGA Premise and a

determination of damages (including punitive damages), if

any, on that theory. We affirm the Order Re Punitive Damages, vacating the jury’s $700 million punitive damages

award under California law. We vacate the district court’s

$241 million restitution award with leave to reinstate, if warranted, at the close of the new damages phase trial.

Finally, we commend the district court for its heroic efforts

to bring to closure a very complicated and lengthy trial and

to find an equitable result. In the end, we reluctantly conclude

that the district court was unsuccessful in reconciling the

jury’s answered verdicts with a single, unanswered verdict.

We share the frustration of the district court and the parties

that seventeen years after the failure of ELIC, fifteen years

after final approval of the successful Rehabilitation Plan, and

nearly ten years after the exposure of the fraud by the Altus/

MAAF Group and its investors, this litigation has not been

brought to an end. Although we remand this case to the district court for further proceedings, we strongly urge the parties

to reconsider their differences, and we again offer the services

of the court’s mediation unit. All parties shall bear their own

costs on appeal. 

AFFIRMED IN PART; REVERSED IN PART;

VACATED IN PART; REMANDED.

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