Opinion ID: 3052784
Heading Depth: 3
Heading Rank: 1

Heading: Altus/MAAF Group Conspiracy to Acquire ELIC’s

Text: 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 4 The MAAF Group included the following entities: MAAF Assurance; MAAF Vie; Omnium Geneve; Financiere du Pacific; and SDI Vendome. 11628 POIZNER v. ARTEMIS S.A. 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 . . . .” POIZNER v. ARTEMIS S.A. 11629 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 11630 POIZNER v. ARTEMIS S.A. 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. Arte- 6 The 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). POIZNER v. ARTEMIS S.A. 11631 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 11632 POIZNER v. ARTEMIS S.A. 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 7 The 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). POIZNER v. ARTEMIS S.A. 11633 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.