Title: Weingarten v. Gross
Citation: N/A
Docket Number: 012702
State: Virginia
Issuer: Virginia Supreme Court
Date: June 7, 2002

PRESENT: All the Justices 
 
ROBERT WEINGARTEN, ET AL., 
 
 
 
OPINION BY 
v.  Record No. 012702 
JUSTICE DONALD W. LEMONS 
 
 
 
June 7, 2002 
ALFRED W. GROSS, DEPUTY RECEIVER OF 
FIRST DOMINION MUTUAL LIFE INSURANCE COMPANY, 
SUCCESSOR TO FIDELITY BANKERS LIFE INSURANCE 
COMPANY, AND TRUSTEE OF FIDELITY BANKERS LIFE 
INSURANCE COMPANY TRUST, ET AL. 
 
FROM THE STATE CORPORATION COMMISSION 
 
 
In this appeal of right from a final order of the State 
Corporation Commission (the “Commission”), we consider whether a 
claim for mandatory indemnification, pursuant to Code § 13.1-
698, is entitled to be paid as “costs and expenses of 
administration,” pursuant to Code § 38.2-1509(B)(1). 
I. 
Facts and Proceedings Below 
The complete history of this case is reported in Gross v. 
Weingarten, 217 F.3d 208 (4th Cir. 2000).  The facts are not in 
dispute and we summarize only those facts relevant to this 
appeal.  On May 13, 1991, the Circuit Court for the City of 
Richmond entered an order placing Fidelity Bankers Life 
Insurance Company (“Fidelity Bankers”) into receivership and 
appointing Steven T. Foster (“Foster”), then the Commissioner of 
Insurance in Virginia, to serve as Deputy Receiver for Fidelity 
Bankers. 
Alfred W. Gross succeeded Foster as Commissioner of 
Insurance and was appointed Deputy Receiver (“Gross” or “Deputy 
Receiver”) of Fidelity Bankers.  Gross proposed a Rehabilitation 
Plan (the “Plan”) for Fidelity Bankers and after a nine-day 
hearing, the Commission approved the Plan and entered a final 
order on September 29, 1992.  Under the Plan, Hartford Life 
Insurance Company (“Hartford”) would assume and reinsure 
potentially all the Fidelity Bankers policies.  Those who 
declined to participate in the Plan received a cash payment of 
the lesser of either 85% of their account value or the surrender 
value of their contracts, and to the extent that available 
assets permitted, a two-year annuity from Fidelity Bankers equal 
to no more than the remaining 15% of their account value.  
Gross, 217 F.3d at 214.  Those who chose to participate were 
offered a Hartford annuity with an account value equal to their 
account value as of the “Effective Date.”  They would also 
receive a Plan Dividend, which was intended to compensate them 
“for loss of interest and liquidity during the seven-year period 
provided for in th[e] [P]lan.” 
In December 1992, approximately 19 months after the 
commencement of the receivership, the Deputy Receiver initiated 
an action in the United States District Court for the Eastern 
District of Virginia against Robert I. Weingarten, Gerry R. 
Ginsberg, and Leonard Gubar (collectively “Directors”), in their 
capacity as former directors of Fidelity Bankers, alleging, 
among other things, violations of federal and state securities 
 
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laws and breach of fiduciary duties.  During the pendency of the 
litigation, the Directors filed counterclaims against the Deputy 
Receiver.  At the close of the evidence during trial, the 
district court granted judgment as a matter of law in favor of 
the Directors on the state securities claim and submitted the 
remaining counts to the jury.  On May 21, 1998, the jury 
returned a verdict in favor of the Directors on the remaining 
counts, and the district court dismissed the counterclaims for 
lack of subject matter jurisdiction.  Gross v. Weingarten, 18 
F.Supp.2d 616 (E.D. Va. 1998). 
The Deputy Receiver appealed the adverse jury verdict and 
the Directors filed a cross-appeal.  The United States Court of 
Appeals for the Fourth Circuit affirmed the jury verdict and 
reinstated and remanded the counterclaims.  Gross v. Weingarten, 
217 F.3d at 225. 
In November 2000, the Deputy Receiver and the Directors 
agreed to a settlement of $3.5 million, which represented 
“certain of the fees and costs incurred” by the Directors in 
their defense of the action.  The district court entered a 
stipulated judgment order (the “judgment”) on January 19, 2001, 
memorializing the $3.5 million settlement and directing that the 
judgment was “subject to the determination of the Virginia State 
Corporation Commission as to the priority to be accorded th[e] 
 
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judgment among the claims against, and liability of, the 
Receivership Estate.” 
The Directors filed a petition for payment and declaration 
of priority status with the Commission against Gross, as Deputy 
Receiver of Fidelity Bankers and Trustee of Fidelity Bankers 
Life Insurance Trust,1 and against First Dominion Mutual Life 
Insurance Company.2  The Directors asserted that the judgment 
represented statutory mandatory indemnification, to which they 
were entitled pursuant to Code § 13.1-698.  They requested an 
order requiring the sum of $3.5 million of the estate to be 
reserved under Code § 38.2-1509 and not distributed by the 
Deputy Receiver until the issues were finally resolved.  The 
Directors further requested a finding that the judgment was 
entitled to “priority status as an administrative expense,” or 
in the alternative, that the judgment was entitled to priority 
status over other creditors, including any further payments 
toward the Plan Dividend.  Finally, the Directors requested 
injunctive relief to require the Deputy Receiver to reserve 
$3.5 million from any final distribution of the Plan Dividend, 
until the judgment was satisfied or until the legal issues were 
finally resolved. 
                     
 
1 The Trust was established by the Deputy Receiver for the 
management and realization of assets not transferred to Hartford 
under the Plan. 
 
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The Commission did not grant the requested injunctive 
relief, holding that if it found for the Directors, the judgment 
would have to be paid as an expense of administration and no 
injunction would be necessary.  Otherwise, if the Commission 
found that the Directors were not entitled to be paid as an 
administrative expense, the Commission would have to modify its 
order of September 29, 1992, to pay the Directors in advance of 
the policyholders entitled to the Plan Dividend.  The Commission 
held that it did not have the authority to modify a final order 
after 21 days following its entry.  Furthermore, the Commission 
concluded that even if it had the authority, it declined “to 
impose such an extremely unfair and chaotic result on the many 
policyholders who made the choice to opt in to the 
Rehabilitation Plan.” 
 
With respect to the Directors’ request for payment as an 
administrative expense, the Commission found: 
 
The [Directors’] right to indemnification 
arises by virtue of their services as directors 
. . . prior to the Receivership, not because of 
services benefiting the Estate thereafter.  
Under these circumstances the [Directors] are 
judgment creditors equal in status with other 
creditors, but not creditors to be paid as part 
of the expense of administration of the 
Receivership. 
 
The Directors appeal the adverse ruling of the Commission. 
                                                                  
 
2 First Dominion Mutual Life Insurance Company is the 
successor to Fidelity Bankers. 
 
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II. Standard of Review 
 
On appeal, the findings of the Commission are “presumed to 
be just, reasonable, and correct.”  Swiss Re Life Co. Am. v. 
Gross, 253 Va. 139, 144, 479 S.E.2d 857, 860 (1997).  However, 
we will reverse the Commission when its decision is based upon a 
mistake of law.  Lake Monticello Serv. Co. v. Board of 
Supervisors of Fluvanna County, 237 Va. 434, 438, 377 S.E.2d 
446, 448 (1989) (citing First Virginia Bank v. Commonwealth, 213 
Va. 349, 351, 193 S.E.2d 4, 5 (1972)). 
III.  Analysis 
 
On appeal, the Directors argue that the Commission erred in 
holding that the $3.5 million judgment was not entitled to be 
paid as an administrative expense of the receivership estate and 
by assigning the judgment the priority status of a general 
creditor under Code § 38.2-1509(B)(1)(v).  The Directors 
maintain that the judgment is entitled to be paid under Code 
§ 38.2-1509(B)(1) as an administrative expense, or in the 
alternative, that the judgment is entitled to “equitable 
priority” over other general creditors, including the 
policyholders entitled to the Plan Dividend.  Finally, the 
Directors assert that the Commission erred when it denied their 
request for injunctive relief. 
 
The Deputy Receiver argues that the Commission correctly 
determined that the judgment is an obligation due a general 
 
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creditor pursuant to Code § 38.2-1509(B)(1)(v).  He further 
argues that the judgment is not entitled to equitable priority 
because the Commission could not alter its final order entered 
on September 29, 1992.  Finally, the Deputy Receiver maintains 
that injunctive relief was not proper. 
 
The relevant version of Virginia Code § 38.2-1509 provided: 
 
 
B. The Commission shall disburse the assets of 
an insolvent insurer as they become available 
in the following manner: 1. Pay, after 
reserving for the payment of the costs and 
expenses of administration, according to the 
following priorities: (i) wages entitled to 
priority . . . (v) other creditors. 
 
The Code does not define the phrase “costs and expenses of 
administration,” and the Deputy Receiver urges us to adopt the 
definition from the United States Bankruptcy Code (“Bankruptcy 
Code”), 11 U.S.C. § 503.  The Bankruptcy Code, 11 U.S.C. 
§ 503(b)(1)(A), defines administrative expenses as “the actual, 
necessary costs and expenses of preserving the estate, including 
wages, salaries, or commissions for services rendered after the 
commencement of the case.”  The Deputy Receiver relies upon 
United States Court of Appeals and Bankruptcy Court decisions 
interpreting 11 U.S.C. § 503 to support his assertion that in 
order to claim the status of an administrative expense, a 
claimant “must demonstrate that the claimed expenses . . . arose 
out of a post-petition transaction with the debtor-in-
possession.”  See, e.g., In re Christian Life Ctr., 821 F.2d 
 
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1370, 1373-74 (9th Cir. 1987) (recognizing that “[c]laims that 
arise from a creditor’s pre-petition services to the debtor are 
not entitled to administrative expense treatment”); see also In 
re Consolidated Oil & Gas, Inc., 110 B.R. 535, 537 (Bankr. D. 
Colo. 1990) (holding that claimants are not entitled to be paid 
as an administrative expense when the claim for indemnification 
arose “from strictly pre-petition services”).  The Deputy 
Receiver maintains that because the action filed against the 
Directors was based entirely on their pre-receivership role as 
directors of Fidelity Bankers, their claim for indemnification 
is not entitled to be paid as an administrative expense. 
 
Federal decisions interpreting 11 U.S.C. § 503 rely on the 
clause “after the commencement of the case” included in the 
statute to hold that a claim based on pre-receivership conduct 
is not entitled to be paid as an administrative expense.  See, 
e.g., In re Consolidated Oil & Gas, 110 B.R. at 537.  However, 
Virginia Code § 38.2-1509 does not contain such language.  
Further, the Deputy Receiver argues that we should adopt the 
requirement of “benefit to the estate” implied in the language 
of 11 U.S.C. § 503(b)(1)(A), which gives administrative expense 
status to actions to “preserve” the bankrupt estate.  However, 
Virginia Code § 38.2-1509 does not contain such language.  
Because the language of Code § 38.2-1509 is demonstrably 
different from the definitions used in the Bankruptcy Code, we 
 
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decline to adopt the rationale employed by the federal courts in 
bankruptcy cases in our interpretation of Code § 38.2-1509. 
 
It is important to note that the claim for statutory 
mandatory indemnification for directors did not arise until the 
Directors “entirely prevail[ed]” in the action brought against 
them by the Deputy Receiver.  As such, the claim accrued well 
after the commencement of the receivership.  The Deputy Receiver 
is charged with knowledge of Virginia’s strong public policy of 
mandatory indemnification found in Code § 13.1-698, which 
provides that “a corporation shall indemnify a director who 
entirely prevails in the defense of any proceeding to which he 
was a party because he is or was a director of the corporation 
against reasonable expenses incurred by him in connection with 
the proceeding.” 
 
Unlike an action by a third party against directors, the 
action in question in this case was brought by the Deputy 
Receiver on behalf of the insolvent corporation.  The action 
itself commenced after the receivership began, was done in the 
administration of the estate, and was instituted on behalf of 
the estate.  If the $3.5 million award had been assessed as 
sanctions for bringing a frivolous lawsuit, it most certainly 
would have been a cost of administration, as conceded by the 
Deputy Receiver during oral argument.  We see no reasonable 
distinction between the hypothetical award of sanctions for 
 
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bringing the action and the mandatory indemnification provided 
by statute.  When the Deputy Receiver brought the action, he 
knew that the “costs” to the estate would include his legal fees 
and the Directors’ fees by indemnification if they “entirely 
prevail[ed].”  The Deputy Receiver’s attorney’s fees have been 
paid as a cost of the administration of the estate.  There is no 
reason why the Directors’ fees established by way of statutory 
indemnity should not also be paid as a cost of the 
administration of the estate. 
 
We hold that the $3.5 million judgment in favor of the 
Directors is entitled to be paid as an expense of the 
administration of the estate under Code § 38.2-1509.  
Consequently, it is unnecessary to resolve the Directors’ claim 
of equitable priority.  Furthermore, it is unnecessary for this 
Court to issue an injunction to the Deputy Receiver.  The 
Court’s ruling is provided herein and the Deputy Receiver is a 
party who is bound by the opinion of this Court.  For these 
reasons, the judgment of the Commission will be reversed and 
this matter will be remanded to the Commission for further 
proceedings consistent with this opinion. 
Reversed and remanded. 
 
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