Court Opinion

ID: 5486862
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:16:04.036135+00
Date Added: 2024-06-11T08:33:41.836035
License: Public Domain

Read, J.
(dissenting). Plaintiffs seek relief in this plenary action brought pursuant to the Debtor and Creditor Law and common law that, if granted, would annul the decision made by *230the Superintendent of Insurance on February 17, 2009 to approve the restructuring of MBIA Insurance Corporation (MBIA Insurance) and related subsidiaries and affiliates by unwinding the underlying transactions. Whether or not this lawsuit is called, in the coinage of the First Department, a “collateral attack” on the Superintendent’s approval (81 AD3d 237, 240 [2011]), the fact remains that the Legislature has confined any challenge to the propriety of the restructuring to a CPLR article 78 proceeding. This is so because the Insurance Law has preempted plaintiffs’ statutory and common-law causes of action, which are all grounded in the notion that the restructuring sanctioned by the Superintendent caused MBIA Insurance to be insufficiently capitalized to the detriment of its structured-finance policyholders. Accordingly, I respectfully dissent.
I.
New York law has historically vested the Superintendent with broad authority to regulate the insurance industry (see Insurance Law § 201 [“The superintendent shall possess the rights, powers, and duties, in connection with the business of insurance in this state, expressed or reasonably implied by this chapter or any other applicable law of this state”]). As particularly relevant to this lawsuit, he is responsible for making sure that insurance companies possess sufficient reserves to pay all their claims (see Insurance Law § 1303), even in the face of “excessive losses occurring during adverse economic cycles” (see id. § 6903 [a] [1]).
The regulatory regime in the Insurance Law embraces both advance approval of certain transactions that may affect an insurer’s viability, and post-transaction supervision of the insurer’s financial condition. Further, most significant transactions between insurers in a holding company system (as happened with the restructuring) require the Superintendent’s prior approval that the terms of the transaction are “fair and equitable,” and his consideration of whether the transaction may “adversely affect the interests of policyholders” (see id. § 1505 [a] [1]; [e]). Thus, the Superintendent reviews any proposed dividend distribution exceeding certain thresholds to make certain that paying it will leave the insurer with sufficient assets to satisfy all outstanding claims (see id. § 4105 [a]). Similarly, he reviews proposed stock redemption plans in advance to ensure that they are “reasonable and equitable” (see id. § 1411 [d]).
*231In addition to his prior approval of insurance transactions, the Superintendent also continually monitors domestic insurers’ financial health through periodic examinations (see id. §§ 309-310) and reviews of insurers’ annually filed financial statements and reports (see id. § 307). If as part of his review the Superintendent determines that an insurer lacks sufficient reserves — i.e., if it “is unable to pay its outstanding lawful obligations as they mature in the regular course of business” (see id. § 1309 [a]) — the Superintendent has the exclusive authority to place the insurer into specialized liquidation or rehabilitation proceedings under article 74 of the Insurance Law (see id. § 7402 [a], [e]). Article 74 authorizes him to avoid “[a]ny transfer of . . . the property of an insurer . . . with the intent of giving to any creditor or enabling him to obtain a greater percentage of his debt than any other creditor of the same class” (see id. § 7425 [a]).
The Superintendent acted to carry out his responsibilities under the Insurance Law’s comprehensive regulatory regime when he approved the dividend payment and stock redemption, and did not disapprove the reinsurance transaction, the individual components of the restructuring proposed by MBIA Insurance. Although the majority notes that the Superintendent “stressed a number of times that his approvals and non-disapproval[ ] were based on ‘the representations made in the [application [by MBIA Insurance] and its supporting submissions, and in reliance on the truth of those representations and submissions’ ” (majority op at 219), he equally emphasized that his decisionmaking was informed by “the Department’s examination of the MBIA Entities’ financial condition prior to” the restructuring, and “the Department’s analysis of the MBIA Entities’ financial condition after the effectuation of” the restructuring. The approval, a complex 10-page document, also imposed various conditions on MBIA Insurance and/or its related affiliates and subsidiaries. In short, the Superintendent issued the approval only after a multimonth investigation of MBIA Insurance’s finances, which encompassed the review of voluminous raw financial data and the running of “super-stressed or break-the-bank” tests by experts within the Department. He was not simply a passive recipient of information from MBIA Insurance, power*232less to verify that company’s representations and dependent on its good graces, as the majority implies.1
“The Legislature may expressly state its intent to preempt, or that intent may be implied from the nature of the subject matter being regulated as well as the scope and purpose of the state legislative scheme ... A comprehensive and detailed statutory scheme may be evidence of the Legislature’s intent to preempt” (Matter of Cohen v Board of Appeals of Vil. of Saddle Rock, 100 NY2d 395, 400 [2003] [emphases added] [state law governing review of area variances preempted contrary local law]).
As already noted, the Insurance Law vests broad powers in the Superintendent to regulate New York’s insurance industry. More to the point, he is directed to ensure that precisely the kinds of transactions at issue in this case are carried out fairly and equitably, and leave the affected insurers with sufficient assets to satisfy their obligations to policyholders. The particular provisions of the “legislative scheme” relevant here, briefly described earlier, could hardly be more “comprehensive and detailed.” Concomitantly, the Superintendent considered the precise issues disputed by plaintiffs in this lawsuit when he approved the restructuring. In other words, plaintiffs’ plenary action not only expressly seeks to undo the restructuring, but does so by contesting the findings underpinning the Superintendent’s approval. There is essentially no daylight between the causes of action asserted by plaintiffs and the substance of the Superintendent’s review.
For example, just as Debtor and Creditor Law § 274’s prohibition on transfers that leave companies with “unreasonably small capital” is intended to keep companies sufficiently capitalized to “sustain operations” (Moody v Security Pac. Bus. Credit, Inc., 971 F2d 1056, 1069, 1070 [3d Cir 1992]), so the Superintendent’s supervision of reserves is intended to ensure that insurance companies can continue to operate by maintaining their ability to pay claims (see Insurance Law § 1309 [a]). Similarly, Debtor and Creditor Law § 276’s prohibition on transfers that may “hinder [or] delay . . . either present or future” policyholders is essentially equivalent to *233the requirement that the Superintendent must determine that a transaction is “reasonable and equitable” (Insurance Law § 1411 [d]).
And in any event, the critical question is whether “the thrust of [plaintiffs’] complaint” goes to matters already determined by an expert agency that has been delegated the primary authority to resolve such issues (Whitney Nat. Bank in Jefferson Parish v Bank of New Orleans & Trust Co., 379 US 411, 417 [1965] [emphasis added]). There need not be exact correspondence. And here, “the thrust” of plaintiffs’ complaint is that the restructuring caused MBIA Insurance to be insufficiently capitalized to the detriment of its structured-finance policyholders. The Superintendent’s approval of the restructuring was premised on his determination that this was not the case. Put another way, plaintiffs assert that the restructuring stripped MBIA Insurance of needed reserves whereas the Superintendent concluded that the restructuring left the insurer in sound financial condition, a prerequisite to his approval.2
The majority seems to suggest that if the Legislature “actually intended the Superintendent to extinguish the historic rights of policyholders to attack fraudulent transactions under the Debtor and Creditor Law or the common law, we would expect to see evidence of such intent within the statute”; and “we would expect that . . . affected policyholders . . . would have notice and an opportunity to be heard before the Superintendent made his determinations” (majority op at 224). As for the first proposition, we have, as already discussed, long held that preemption need not be express where the legislative regime is comprehensive and detailed. Most recently, for example, we held in People v Grasso (11 NY3d 64 [2008]) that the Not-For-Profit Corporation Law preempted certain common-law claims pressed by the Attorney General. There was no express language in the statute to this effect. And I am not *234aware that we have ever considered the scope of an agency’s notice and hearing provisions to be relevant to preemption.
II.
In my view, plaintiffs’ common-law causes of action are also preempted because they are simply artfully repackaged versions of the Debtor and Creditor Law claims. In any event, these causes of action are deficient on the merits, as the Appellate Division majority correctly concluded.
The majority reinstates plaintiffs’ breach of contract claim, locating the breach within the implied covenant of good faith and fair dealing because “plaintiffs sufficiently allege that MBIA Insurance, by fraudulently transferring billions of dollars in assets to MBIA Inc. for no consideration, violated the covenant by substantially reducing the likelihood that [it] will be able to meet its obligations under the terms of the insurance policies” (majority op at 228-229 [internal quotation marks omitted]). For support, the majority cites MBIA Ins. Corp. v Countrywide Home Loans, Inc. (2009 NY Slip Op 31527[U] [Sup Ct, NY County 2009]).
Countrywide underwrote and sold residential mortgage-backed securities and obtained financial guarantee insurance on those securities from MBIA Insurance. To get MBIA Insurance to sign on, Countrywide represented that if there was “a breach of any representation or warranty related to a mortgage loan (a ‘Defective Loan’), it would either cure the breach or repurchase or substitute eligible mortgage loans for the Defective Loan” (id. at *5). The ultimate insurance between Countrywide and MBIA Insurance, in contrast to this case, “incorporated the representations and warranties . . . and gave MBIA [Insurance] the right to rely on these representations and warranties, to enforce their terms, and to exercise remedies for any breach” (id. at *6).
Supreme Court rejected MBIA Insurance’s generalized claims that the parties’ insurance agreement included an implied promise that Countrywide would tell MBIA Insurance all about different special kinds of risk and use underwriting standards of a certain quality. But the court upheld one narrow aspect of MBIA Insurance’s breach of contract claim:
“the claim survives to the limited extent that it asserts that corrective action — such as investigating loans which became over 30-days delinquent — would *235have preserved MBIA[ Insurance]’s benefits under the bargain, but that Countrywide Home deliberately refused to take such action in order to collect more late payment fees and service charges” (id. at *19).
In other words, Countrywide allegedly frustrated specific objectives in the parties’ contract.
Here, by contrast, plaintiffs have not alleged any objectively measurable deviations from specific contract provisions. And it is undisputed that, as part of the restructuring, MBIA Illinois agreed to reinsure the $554 billion in outstanding municipal bonds issued by MBIA Insurance. As plaintiffs themselves explain, the “reinsurance gives policyholders direct claims against both the original insurer (MBIA Insurance) and the reinsurer (MBIA Illinois).” One can hardly say that MBIA Insurance derives no benefit whatsoever from the fact that one of its sister companies is now jointly liable for its entire municipal bond portfolio.
Plaintiffs also allege that the parent company abused MBIA Insurance’s corporate form by shifting assets to cause insolvency and lack of present ability to meet its obligations to policyholders (although the company has, in fact, paid all claims that have become due since the restructuring). To pierce the corporate veil, plaintiff must show that “(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) . . . such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiffs injury” (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). We have held that “[t]hose seeking to pierce a corporate veil . . . bear a heavy burden” (TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339 [1998]).
In the majority’s view, plaintiffs can apparently show domination of MBIA Insurance by virtue of its status as a wholly-owned subsidiary of MBIA Inc. (majority op at 229); however, “[i]t is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation ... is not liable for the acts of its subsidiaries” (United States v Bestfoods, 524 US 51, 61 [1998]). Further, the majority grounds the requisite abuse of the corporate form on the allegation that MBIA Inc. “caus[ed]” MBIA Insurance to undertake “transactions that now shield” assets from plaintiffs — in other words MBIA Inc. purportedly drained capital from its subsidiary (majority op at 229). As the Second Circuit Court of Appeals has pointed out, though, “no New York authority . . . disregards *236corporate form solely because of inadequate capitalization” (Gartner v Snyder, 607 F2d 582, 588 [2d Cir 1979]).
III.
The Superintendent approved MBIA Insurance’s restructuring after finding that it was fair and equitable and would leave the affected insurers with sufficient assets to satisfy their obligations to policyholders, including, of course, these plaintiffs, who have persuaded the majority that the courts may nonetheless review the restructuring de novo. Having recently merged the Departments of Insurance and Banking to create a new Department of Financial Services to provide the “responsive, effective, innovative[ ] state banking and insurance regulation . . . necessary to operate in a global, evolving and competitive market place” (L 2011, ch 62, § 1, enacting Financial Services Law § 101-a), the Legislature may wish to consider if, as a result of today’s decision, further legislation is now necessary to address the new Department’s envisioned role as the arbiter of major financial transactions in these industries. Critically, it does not enhance New York’s reputation as a major financial center for insurers to be put in a position where they survive our State’s daunting regulatory gauntlet and gain approval for a financial transaction under the Insurance Law, yet remain vulnerable to multiple lawsuits brought in state and federal court3 by disaffected policyholders who claim that the same transaction is fraudulent under other state statutes and common law. The regulatory agency would not be a party in these lawsuits and, after today’s decision, there is no reason for such plaintiffs to bring a CPLR article 78 proceeding in addition to their plenary actions.4 It surely behooves the Legislature to make clear that *237for which the majority discerns inadequate support in current law: the State’s comprehensive financial regulatory regime preempts lawsuits under the Debtor and Creditor Law and common law seeking to upset transactions approved or directed by the Superintendent (now, the Superintendent of Financial Services), which may only be challenged in a CPLR article 78 proceeding.
Chief Judge Lippman and Judges Smith, Pigott and Jones concur with Judge Ciparick; Judge Read dissents in a separate opinion in which Judge Graffeo concurs.
Order modified, etc.

. Of course, if plaintiffs believe that the Superintendent relied on inaccurate or unreliable data, they may pursue this tack in their CPLR article 78 proceeding.

. The majority compares this case to Richards v Kaskel (32 NY2d 524, 535 n 5 [1973]); however, in Richards, the administrative action — the Attorney General’s acceptance of a sponsor’s cooperative offering plan — “[did] not constitute approval” of the plan by him (see General Business Law § 352-e [4]; Matter of Charles H. Greenthal & Co. v Lefkowitz, 32 NY2d 457, 462 [1973] [noting that an offering plan is “filed simply for informational purposes” to enable prospective buyers to decide whether to purchase an interest]). Moreover, the plaintiffs in Richards alleged specific oral misrepresentations to tenants apart from the offering plan (see Richards v Kaskel, 69 Misc 2d 435, 443 [Sup Ct, NY County 1972]).

. MBIA Insurance has also been sued in the United States District Court for the Southern District of New York, and in the Delaware Court of Chancery (see Aurelius Capital Master, Inc. v MBIA Ins. Corp., 695 F Supp 2d 68 [SD NY 2010] [suit by a putative class of structured-finance policyholders]; Third Ave. Trust v MBIA Ins. Corp., 2009 WL 3465985, 2009 Del Ch LEXIS 186 [2009] [suit by noteholders]). The plaintiffs in these two cases press the same state statutory and common-law claims advanced by plaintiffs in this lawsuit. Multiple lawsuits in multiple jurisdictions present the obvious risk of conflicting or at least inconsistent outcomes for different policyholders of the same insurer, further undermining the certainty and stability of the Superintendent’s approval.

. Plaintiffs here did not commence their CPLR article 78 proceeding until shortly after MBIA Insurance filed its motion to dismiss. In the motion, MBIA *237Insurance argued that plaintiffs’ action was barred as a collateral attack on the Superintendent’s approval, which apparently alerted plaintiffs to the advisability of initiating a CPLR article 78 proceeding before the four-month statute of limitations expired. Other policyholders who have sued MBIA Insurance (see n 3 at 236) did not commence CPLR article 78 proceedings against the Superintendent.