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

Heading: State Funds Under the CFCA

Text: 50 The Attorney General contends that the state's relationship to ELIC's assets was sufficient to permit him to bring his action under the CFCA. The CFCA defines a claim as any request or demand for money, property, or services made to any employee, officer, or agent of the state or of any political subdivision, or to any contractor, grantee, or other recipient, whether under contract or not, if any portion of the money, property, or services requested or demanded issued from, or was provided by, the state (hereinafter `state funds'). Cal. Gov't Code § 12650(b)(1) (emphasis added). The crux of this second issue is whether the Commissioner's conservatorship meant that ELIC's assets became, temporarily, state funds, as defined in section 12650(b)(1). 51 In support of his interpretation of state funds, the Attorney General argues that the State held title in the Property pursuant to Insurance Code section 1011 and the Superior Court's April 11, 1991 Order. The State had the right to, and did, in fact, exercise dominion and control over the property. The Attorney General's position is based on the 1991 Order of Conservation transferring to the Insurance Commissioner of the State of California ... in his official capacity and pursuant to the provisions of the California Insurance Code ... all title, both legal and equitable[,] to all of [ELIC's] assets. 52 The Attorney General maintains that the assets qualify because they were issued from the state. This line of reasoning posits that issuance encompasses a transfer or conveyance, so the CFCA can apply to funds under the state's supervision or control regardless of the impact of the alleged fraud on the public treasury. Appellees respond that decisions such as LeVine v. Weis, 68 Cal.App.4th 758, 765, 80 Cal.Rptr.2d 439 (1998), make clear that the purpose of the CFCA is to protect the public fisc and argue that the Commissioner's appointment as conservator did not convert ELIC's assets into state funds. 53 The district court relied on Carpenter v. Pacific Mutual Life Insurance Co., 10 Cal.2d 307, 74 P.2d 761 (1937), aff'd sub nom. Neblett v. Carpenter, 305 U.S. 297, 59 S.Ct. 170, 83 L.Ed. 182 (1938), to conclude that the assets to which the Commissioner, as an officer of the State, holds title do not become State property in the manner, for example, that land the State acquires pursuant to eminent domain becomes an asset of the State. Rather, the Commissioner serves as a trustee of those assets on behalf of the insurer's creditors. Carpenter was a case in which the Commissioner used an insolvent insurer's assets to purchase stock in the new insurance company formed after rehabilitation. 54 The appellants alleged a state constitutional violation, noting that a provision of the California Constitution prohibited the state from loan[ing] its credit [or] subscrib[ing] to or be[ing] interested in the stock of any company, association, or corporation. Id. at 780. The California Supreme Court rejected the proposition that the Commissioner's rehabilitation actions transformed the state into a stockholder of the insurance company concerned: 55 Section 1057 of the Insurance Code ... expressly provides that in all proceedings thereunder the commissioner acts as trustee for the benefit of all of the creditors of the insolvent company. It is quite clear that the commissioner by subscribing to the stock of the new company has not loaned the credit of the state to the new company. Not a penny of state money has gone into the treasury of the new company. No liability under the agreement is imposed on the conservator either in his official or personal capacity. There was no loan of credit at all. The commissioner acting pursuant to a statute, with court approval, took certain assets of the old company and transferred them to the new company in exchange for the stock which he holds as trustee for the benefit of the creditors of the old company. Obviously, the commissioner as a state officer did not subscribe to the stock of the new company so as to make the state a stockholder. 56 Id. 57 Carpenter also emphasized, however, that [o]f course the insurance commissioner is a state officer. Id. So the division proposed by appellees between the Commissioner as state official and the Commissioner as trustee of private funds may not be dispositive in demarcating state funds, as the Commissioner is both. 58 Further, while it is clear that the Commissioner's role in the insolvency is that of a trustee, see Cal. Ins.Code § 1057, the state funds question in this case arises under the CFCA, which defines state funds in a somewhat sui generis manner. Carpenter's holding that the state was not a shareholder despite the Commissioner's possession of shares does not address the subsequently enacted issued from, ... or provided by, the state language of the CFCA, and therefore cannot determine the question whether the assets at issue in this case are state funds under that definition. 59 Carpenter did observe that section 1011 of the Insurance Code vest[s] the commissioner with title to all the assets of the company, 74 P.2d at 775, and still ruled against the contention that the state's interest in the property was such as to render the state interested in the stock of the company within the meaning of the relevant constitutional provision. Other provisions of the Insurance Code may support the proposition that the assets of an insolvent insurance company are not properly considered state funds. See, e.g., Cal. Ins.Code § 1019 (addressing creditors, policyholders, shareholders and members, and all other persons interested in [a liquidated insurer's] assets, including the State of California). Yet the Insurance Code was enacted a half-century before the CFCA, and the pertinent CFCA definition of state funds has not been addressed by controlling precedent. We therefore believe that a request to the California Supreme Court to harmonize these statutes is proper. V 60 Pursuant to California Rule of Court 29.8(d), the Clerk of this court shall forward an original and 10 copies of this order, under official seal, to the California Supreme Court, along with a certificate of service on the parties, and copies of all briefs, excerpts of record, requests for judicial notice, and post-argument letters that have been filed with this court. 8 61 The parties shall notify the Clerk of this court within 14 days of any decision by the California Supreme Court to accept or to decline our request. If the California Supreme Court accepts, the parties shall file a joint report six months after the date of acceptance and every six months thereafter advising us of the status of the proceedings. The parties shall also notify the Clerk of this court within 14 days of the issuance of an opinion by the California Supreme Court. 62 IT IS SO ORDERED.