Opinion ID: 783670
Heading Depth: 2
Heading Rank: 1

Heading: Allocation of Power Between Two State Officers

Text: 39 The Attorney General disputes the district court's conclusion that the Commissioner has exclusive authority to pursue this litigation. It is the Attorney General's position that the Commissioner has no authority to bring a CFCA action and that the Commissioner cannot seek penalties under the UCL, which would be cumulative to any recovery by the Commissioner pursuant to California Business and Professions Code section 17205. Moreover, the Attorney General emphasizes that his claims, underpinned by the state's sovereign power of law enforcement, are different from those being brought by the Commissioner. Should the Attorney General prevail, treble damages are automatic under the CFCA, while the punitive damages sought by the Commissioner are not. In addition, the elements of fraud to be proven in the two lawsuits differ, to the advantage of the Attorney General. See Cal. Gov't Code §§ 12650(b), 12651(a)(providing that the CFCA does not require the Attorney General to establish elements of intent and reliance, which the Commissioner must under the UCL). More broadly, the Attorney General maintains, the legal actions taken by the Commissioner as a conservator advance distinct sovereign interests from those furthered by the Attorney General's attempt to punish and deter the fraudulent conduct alleged. 40 With regard to appellees' contention that Insurance Code section 1037 mandates exclusivity for the Commissioner, the Attorney General responds that section 1037 provides that the State, acting through the Commissioner as the statutory successor in interest, may do what `that person,' that is, the insolvent insurer, could have done. See Texas Commerce Bank v. Garamendi, 28 Cal.App.4th 1234, 1245, 34 Cal.Rptr.2d 155 (1994) ([T]he commissioner is a public official acting on behalf of the state when dealing with insolvent insurers in general, but once appointed conservator of a particular insolvent insurer, the commissioner steps into the shoes of that insurer.). According to the Attorney General, the Commissioner's exclusive powers are limited to those he exercises as a `conservator or liquidator.' Because the present suit could not be brought in the Commissioner's or ELIC's name, this argument concludes, the action is not barred by the exclusivity limitation of section 1037's preamble. 41 In support of this statutory interpretation, the Attorney General cites cases in which law enforcement prosecutions by his office were allowed despite the existence of parallel (though not exclusive) authority in other state agencies. See, e.g., People v. McKale, 25 Cal.3d 626, 159 Cal.Rptr. 811, 602 P.2d 731, 734 (1979). The Attorney General also relies on Farmers Insurance Exchange v. Superior Court, 2 Cal.4th 377, 6 Cal.Rptr.2d 487, 826 P.2d 730 (1992). In Farmers, the Attorney General had filed suit against insurers under the Unfair Practices Act, Cal. Bus. & Prof. Code § 17000 et seq. The Insurance Commissioner had not yet acted administratively against the insurers pursuant to the McBride Act, a component of the Insurance Code, and was therefore accorded primary jurisdiction, precluding the Attorney General's action, but only until agency review was complete. In so ruling, the California Supreme Court stated that the enactment of the Unfair Practices Act subsequent to the McBride Act merely modifies preexisting law, to provide, in essence, that insurers are subject to the unfair business practices laws in addition to preexisting regulations under the McBride Act, as amended. Farmers, 6 Cal.Rptr.2d 487, 826 P.2d at 741. This decision may support the Attorney General's reading of the UCL as complementary to the Insurance Code. 42 Appellees counter in part by arguing that other California cases hold that the Commissioner's powers are exclusive regardless of the competing plaintiff's status: The Commissioner alone is authorized to bring civil actions concerning the assets of an insolvent insurance company. See In re Executive Life Ins. Co., 32 Cal.App.4th 344, 356, 38 Cal.Rptr.2d 453 (1995) (the Insurance Code authorizes the Commissioner as conservator to exercise[] the state's police power to carry forward the public interest and to protect policyholders and creditors of the insolvent insurer). To further their argument that the Commissioner's authority under section 1037(f) is exclusive even when juxtaposed with the Attorney General's authority under the CFCA and the UCL, appellees draw on an Opinion of the Attorney General, Op. No. 45-294 (May 3, 1946). The Opinion was issued before the enactment of either the CFCA or the UCL and construed the exclusivity provision of the Insurance Code, a special statute dealing with a particular function of a particular officer, to prevail over a general statute, Cal. Gov't Code § 11009, which required prior approval by the Director of Finance for certain transactions by state agencies. Id. at 264. Appellees also rely on two cases in which the Attorney General brought common law claims that were rejected due to the Legislature's intent to occupy the field, Van de Kamp v. Gumbiner, 221 Cal.App.3d 1260, 1284, 270 Cal.Rptr. 907 (1990), and People v. New Penn Mines, 212 Cal.App.2d 667, 28 Cal.Rptr. 337 (1963), and on Quackenbush v. Superior Court, 79 Cal.App.4th 867, 94 Cal.Rptr.2d 282 (2000), which interpreted section 1037's use of the term exclusively. Quackenbush held that the Commissioner possesses exclusive authority to prosecute and defend any and all suits and other legal proceedings for the purpose of collecting debts and claims due to a liquidated insurance company. ... [A]s Cal-American's liquidator, the Commissioner has been given the exclusive right to pursue, collect and sue on any and all claims that Cal-American may have. Id. at 872-74, 94 Cal.Rptr.2d 282. Quackenbush is not on its face inconsistent with the Attorney General's position, however, as he does not oppose the contention that it is as a liquidator (or conservator) that the Insurance Commissioner has exclusive authority, and not otherwise. 43 None of these cases appears directly to address the present situation. The Attorney General in this case is claiming explicit statutory authority to sue alongside the Commissioner, not relying on common law powers. Cf. Garcia v. McCutchen, 16 Cal.4th 469, 66 Cal.Rptr.2d 319, 940 P.2d 906, 911 (Cal.1997) (holding that implied repeal will be found only when there is no rational basis for harmonizing two potentially conflicting statutes). Appellees' cases do not, in our view, address the Attorney General's claim to be the appropriate state official to bring suit for wrongs committed against the state. The Insurance Commissioner's exclusive authority under section 1037(f) may be limited to his roles as conservator or liquidator, leaving room for the Attorney General to engage in parallel legal action so long as it does not involve conservatorship or liquidation matters. 44 Finally, appellees present policy arguments to support their position. We firmly believe that these are appropriately within the ken of the California Supreme Court to address, and outline them here only to supplement our sense of the equipoise in which the primary question of statutory interpretation is suspended. 45 First, noting that the Attorney General's original complaint asserted claims based on ELIC's assets and on the losses of its policyholders, appellees claim that the Attorney General's prosecution of this action is a direct duplication of the Commissioner's authority. The Insurance Code provides that the Attorney General has the right to serve as the Commissioner's counsel in conservancy proceedings. See Cal. Ins.Code § 1036 (incorporating Cal. Gov't Code § 11040). This provision suggests, according to appellees, that the legislature's intent was to preclude competing proceedings in which the Commissioner's actions are potentially at odds with those of the Attorney General. The appellees use the Low action as an example. There, the Commissioner, acting without the Attorney General as counsel, granted a release from liability to the Apollo parties, while joining some defendants not sued by the Attorney General in this case. 46 Appellees further question the potential dilution of the pool of ELIC's assets available to compensate policyholders were the Attorney General's action permitted to proceed. CFCA recoveries by the qui tam plaintiff (at least 15%) and the Attorney General (33%), see Cal. Gov't Code § 12652(g)(2), as well as UCL recovery by the treasurer of Los Angeles County, see Cal. Bus. & Prof.Code § 17206(c), 7 could interfere with the Commissioner's primary responsibility to the policyholders directly affected by ELIC's insolvency. See Cal. Ins.Code § 1033 (Preferred claims); Executive Life Ins. Co., 32 Cal.App.4th at 365, 38 Cal.Rptr.2d 453(insolvency regime is designed to protect policyholders of insolvent insurers by a process of rehabilitation). 47 A third policy concern presented by appellees is the possible disincentive to settlement that would result from the shadow of Attorney General-driven litigation looming over the Commissioner's efforts at conservatorship. The state would retain opportunities to punish fraud such as that alleged in the present case, appellees argue, even if section 1037 were read to bestow exclusivity on the Commissioner. First, the Commissioner has some independent authority to levy civil penalties. See Cal. Ins.Code §§ 790.035(a), 1215.10(b). In addition, criminal charges, possibly including financial penalties, could be pursued by the state with respect to any fraudulent transactions. See id. § 12928(Commissioner must refer insurers' violations of the penal code and other laws to district attorneys). 48 The Attorney General rejoins that the Commissioner's action against all or some of the appellees who are defendants in both actions could be unsuccessful, while his own claims, subject to lower standards of proof and higher damages, might in that event vindicate the policyholders. Moreover, the Attorney General's recovery, were it allowed under the CFCA, would leave the actual damages (one-third of a treble award) to revert to the state. [P]ursuant to the provisions of the Insolvency Act, the Attorney General represents, these monies will be distributed to policyholders and creditors. This point is disputed, as appellees contend that under People v. Honig, 48 Cal.App.4th 289, 55 Cal.Rptr.2d 555 (1996), if Appellant recovered under the CFCA, the AG could not legally distribute a portion of that recovery to the policyholders. 49 In sum, we find that the question presented concerning the Attorney General's authority to prosecute the present action is so close on all grounds — statutory language, precedent, and policy — as to justify our request for guidance from the California Supreme Court, in light of the importance of properly allocating powers between the state constitutional officers involved.