Opinion ID: 2533998
Heading Depth: 3
Heading Rank: 2

Heading: HLFPD's Lawsuit

Text: In January of 2000, while a final decision by the Supreme Court in Kelso was pending, HLFPD filed a Complaint against the SIF, James Alcorn as Manager of the SIF, Drew Forney, a former Manager of the SIF, the Directors of the SIF, the Department of Administration, and the State. The Complaint contained many claims similar to those asserted in Kelso, so the action was stayed pending resolution of that case. After this Court remanded Kelso to the district court, it was consolidated with HLFPD's case, and the case was certified as a class action. HLFPD was named as class representative for all private policyholders and public policyholders other than the State. The State was permitted to intervene as a defendant. HLFPD filed an Amended Consolidated Complaint on November 10, 2000, alleging breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, money had and received, rescission, declaratory relief, injunction, equitable accounting, and attorney fees. HLFPD demanded a jury trial pursuant to I.R.C.P. 38(b). On March 5, 2001, the district court entered an Order striking the demand for a jury trial as untimely. HLFPD filed a motion for jury trial under I.R.C.P. 39. The district court denied the motion. The parties brought cross-motions for partial summary judgment. On July 27, 2001, the district court entered the first of three Memorandum Opinion and Orders at issue in this appeal. The district court dismissed the claims against the SIF Directors as individuals. In regards to the claims that the SIF violated former I.C. § 72-911 by setting aside more than 5% of premiums for surplus, the district court determined that the statute was ambiguous. The 5% language could be reasonably interpreted as a minimum or a maximum amount of premiums to be set aside for surplus. The court refused to give Simplot deference to the SIF's longstanding interpretation of the statute as a minimum amount of premiums for surplus since it held that the SIF was not a state agency granted the authority to interpret its governing statutes. J.R. Simplot Co., v. Idaho State Tax Comm'n, 120 Idaho 849, 820 P.2d 1206 (1991). The court determined that the legislative intent behind I.C. § 72-911 was that it was a start-up provision, designed to help the SIF quickly build its surplus. The district court focused on the language in I.C. § 72-911 which provided the SIF Manager with discretion to maintain a sufficiently large surplus. The district court found that this language supported the SIF's contention that the solvency of the SIF was the main motivation behind I.C. § 72-911. Any limits on the amount of premiums the SIF Manager could set aside for surplus had to be read in conjunction with the language placing the amount of surplus in the Manager's discretion. The district court granted summary judgment in favor of the SIF on the claim that its retention of premiums for surplus violated former I.C. § 72-911. The district court rejected the SIF's argument that an agency's discretionary decisions are not reviewable in court. The district court found that IAPA did not apply to this case but determined that the judicial review provisions of the IAPA were relevant. The district court reviewed the Manager's actions with respect to surplus and dividends under an arbitrary, capricious, or an abuse of discretion standard. The district court determined that the implied covenant of good faith and fair dealing impacts all of the terms of the SIF's contracts with its policyholders, finding that any statutory violation that constituted a breach of the SIF's contracts would also implicate the covenants of good faith and fair dealing. The district court determined that the SIF had no fiduciary duties to policyholders in the management of the SIF's funds. The district court determined that since the SIF's managers and directors were analogous to directors of a corporation, the business judgment rule was helpful in clarifying the abuse of discretion standard used to review their actions. The SIF acted within the scope of its statutory authority, its actions were in good faith, and it reasonably believed such actions to be in the best interests of the corporation. Finding that the SIF had not breached its contracts or implied covenants, the district court granted summary judgment to the SIF on all surplus and dividend issues. The district court examined the terms of the real estate transactions between the SIF and the State and determined that it was unclear whether the deals were true leases or disguised mortgage loans. If the deals were mortgage loans, the SIF would have violated I.C. § 41-722, which provides that an insurer can only loan up to 75% of the value of a parcel of property in a mortgage loan. It was undisputed that the SIF provided 100% of the funding for its deals with the State. The district court found that even if the real estate transactions were lawful, the Manager's actions would still need to be reviewed for an abuse of discretion. If the deals were grossly unfavorable to the SIF, then the Manager may have abused his discretion. Since such a finding was related to the legality of the transactions, the court denied summary judgment to the SIF on the Plaintiffs' breach of contract and breach of implied covenant claims relating to the real estate investments. Summary judgment was granted to the SIF on the claims that it breached its fiduciary duties to policyholders in the real estate transactions. The district court denied summary judgment on the claims challenging the legality of the real estate transactions with the State. Summary judgment was also denied on the claims that the deals were unreasonably favorable to the State, causing damage to the SIF and its policyholders. The district court denied summary judgment on the causes of action seeking declaratory and injunctive relief and attorney fees.