National American Insurance v. Centra, Inc. , 151 F.3d 780 ( 1998 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 97-2247NE, 97-2251NE, 97-4039NE
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_____________ *
*
No. 97-2247NE *
_____________ *
*
National American Insurance Company, *
a Nebraska Corporation, *
*
Plaintiffs - Appellees, *
*
Timothy J. Hall, Director of the *
Nebraska Department of Insurance, *
* On Appeal from the United
Intervenor Below - Appellee, * States District Court
* for the District of
v. * Nebraska.
*
*
CenTra, Inc., a Delaware Corporation; *
Can-Am Investments Limited, a *
Bahamian Corporation; Ammex, Inc., *
a Michigan Corporation; DuraRock *
Underwriters, Ltd., a Barbados *
Registered Corporation; Manual J. *
Moroun, an individual; Manual J. *
Moroun, Custodian of the Manual J. *
Moroun Trust for the Benefit of *
Matthew T. Moroun, *
*
Defendants - Appellants, *
*
Agnes A. Moroun, an individual; *
Agnes A. Moroun, Trustee for the *
M.J. Moroun Irrevocable Trust for *
Matthew T. Moroun; Dean Witter *
Trust, Inc., a Corporation, *
*
Defendants. *
*
*
_____________ *
*
No. 97-2251NE *
_____________ *
*
National American Insurance Company, *
a Nebraska Corporation, *
*
Plaintiff - Appellee, *
*
Timothy J. Hall, Director of the *
Nebraska Department of Insurance, *
* On Appeal from the United
Intervenor Below - Appellee, * States District Court
* for the District of
v. * Nebraska.
*
*
CenTra, Inc., a Delaware Corporation; *
Can-Am Investments Limited, a *
Bahamian Corporation; Ammex, *
Inc., a Michigan Corporation; DuraRock *
Underwriters, Ltd., a Barbados *
Registered Corporation; Manual J. *
Moroun, an individual; Manuel J. *
Moroun, Custodian of the Manual J. *
Moroun Trust for the Benefit of *
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Matthew T. Moroun, *
*
Defendants, *
*
Agnes A. Moroun, an individual; *
Agnes A. Moroun, Trustee for the *
M.J. Moroun Irrevocable Trust for *
Matthew T. Moroun, *
*
Defendants - Appellants, *
*
Dean Witter Trust, Inc., a Corporation, *
*
Defendant. *
*
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*
No. 97-4039NE *
_____________ *
*
National American Insurance Company, *
a Nebraska Corporation, *
*
Plaintiffs - Appellees, *
*
Timothy J. Hall, Director of the * On Appeal from the United
Nebraska Department of Insurance, * States District Court
* for the District of
Intervenor Below - Appellee, * Nebraska.
*
v. *
*
*
CenTra, Inc., a Delaware Corporation; *
Can-Am Investments Limited, a *
Bahamian Corporation; Ammex, *
Inc., a Michigan Corporation; DuraRock *
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Underwriters, Ltd., a Barbados *
Registered Corporation; Manual J. *
Moroun, an individual; Manual J. *
Moroun, Custodian of the Manual J. *
Moroun Trust for the Benefit of *
Matthew T. Moroun, *
*
Defendants - Appellants, *
*
Agnes A. Moroun, an individual; *
Agnes A. Moroun, Trustee for the *
M.J. Moroun Irrevocable Trust for *
Matthew T. Moroun; Dean Witter *
Trust, Inc., a Corporation, *
*
Defendants. *
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Submitted: April 13, 1998
Filed: July 29, 1998
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Before RICHARD S. ARNOLD,1 Chief Judge, LOKEN and MORRIS SHEPPARD
ARNOLD, Circuit Judges.
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RICHARD S. ARNOLD, Chief Judge.
National American Insurance Company (NAICO) and the Director of the
Nebraska Department of Insurance sued CenTra, Inc., Can-Am Investments, Ltd.,
Ammex, Inc., DuraRock Underwriters, Ltd., and Manuel Moroun (“the CenTra
1
The Hon. Richard S. Arnold stepped down as Chief Judge of the United States
Court of Appeals for the Eighth Circuit at the close of business on April 17, 1998. He
has been succeeded by the Hon. Pasco M. Bowman II.
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defendants”), and Agnes Moroun, under the Nebraska Insurance Holding Company
System Act (NIHCSA). They alleged that the CenTra defendants had violated the
NIHCSA in their attempt to acquire control of NAICO’s parent company, Chandler
Insurance Company, Ltd. (Chandler). On summary judgment, the Court found that the
CenTra defendants had violated the NIHCSA and ordered divestiture of their Chandler
holdings. The CenTra defendants and Agnes Moroun appeal. We affirm.
I.
The NIHCSA, Neb. Rev. Stat. §§ 44-2120 et seq. (1993), regulates control of
insurance companies. “Control” is presumed when any entity, “directly or indirectly,
owns, controls, holds with the power to vote, or holds proxies representing ten percent
or more of the voting securities” of an insurer. Neb. Rev. Stat. § 44-2121(2). The
statutory presumption can be rebutted by showing that control does not in fact exist,
through the filing of a disclaimer, which the Director of Insurance may then disallow.
Neb. Rev. Stat. § 44-2132(11).
A party who has not disclaimed control must file an application with the
Department of Insurance for prior approval of a transaction that would result in control.
Neb. Rev. Stat. § 44-2126(1). The filing, known as a Form A, requires information
about the acquiring party and the transaction, and other information “necessary or
appropriate for the protection of policyholders of the insurer or in the public interest.”
Neb. Rev. Stat. § 44-2126(3)(l).
Upon a Form A filing, the Director makes a determination of the applicant’s
fitness to control the insurer, considering factors such as the financial condition of the
acquiring party; its plans to make any “material change in its business or corporate
structure of management”; “the competence, experience, and integrity of those persons
who would control the operation of the insurer”; and the proposed acquisition’s risks
to the public. Neb. Rev. Stat. § 44-2127(1).
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Failure to file an application for prior approval of control is a violation of
NIHCSA, as is “effectuat[ing] or attempt[ing] to effectuate an acquisition of control of
or merger with a domestic insurer unless the director has given his or her approval
hereto.” Neb. Rev. Stat. § 44-2129(2). For relief, the statute provides that “the district
court of Lancaster County may, on such notice as the court deems appropriate, upon the
application of the insurer or the director seize or sequester any voting securities of the
insurer owned directly or indirectly by such person and issue such order with respect
thereto as may be appropriate to effectuate the act.” Neb. Rev. Stat. § 44-2142.
II.
NAICO is an insurance company authorized to write property and casualty
insurance in Nebraska. It is owned ultimately by Chandler Insurance Company, Ltd.
Both NAICO and Chandler are “domestic insurers” subject to the NIHCSA. CenTra
is a holding company in the business of motor freight transportation. The other
defendant corporations -- Can-Am, Ammex, and DuraRock -- are subsidiary and related
entities of CenTra. Manuel Moroun is the president or CEO of each of these
corporations, as well as their principal shareholder. Agnes Moroun, his sister, is a
director and officer of CenTra and a shareholder in the other corporations as well.
In 1987, NAICO began providing insurance to CenTra and its affiliates. CenTra
began buying NAICO-related stock, resulting by 1989 in more than a ten-percent
interest in Chandler. NAICO filed a disclaimer of control on CenTra’s behalf,
explaining as one reason why control should not be presumed at that time, that “[b]y
agreement, CenTra and its affiliates are precluded from owning more than 24% of the
outstanding stock of Chandler.” J.A. at 928.
In 1991, Chandler’s management decided to take the corporation private. The
CenTra defendants opposed this decision and, in June 1992, contacted the Department
of Insurance for advice on acquiring additional Chandler stock to block the takeover.
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The Department explained that “any expansion of CenTra’s current holdings would
require either a Form A . . . or a disclaimer of control rebutting the presumption . . . filed
with the Department for approval prior to the new proposed transaction occurring.”
J.A. at 784. Upon learning that CenTra was “nevertheless . . . attempting to acquire
control over NAICO,” the Department ordered it “to immediately CEASE and DESIST
from engaging in any further [such] conduct . . . unless and until . . . the Director has
approved such acquisition . . ..” J.A. at 786-87. On July 8, CenTra authorized its
broker to buy up to 1,800,000 shares of Chandler and formed Can-Am for the purpose
of holding such acquisitions. On July 9, it filed a Form A with the Department. Despite
another cease-and-desist order from the Department, by July 13 the CenTra defendants
had bought 1,441,700 shares in Chandler, to be held in trust for Can-Am. Additionally,
they purchased 550,329 shares from private entities. In total, they then held 49.2% of
Chandler’s stock. On July 13, they filed a disclaimer of control.
On July 22, the Department issued an order prohibiting the CenTra defendants
and Agnes Moroun from purchasing additional Chandler stock, and from transferring
or voting any Chandler stock purchased after December 31, 1991. J.A. at 887. At a
preliminary hearing, the Department dismissed the disclaimer filing, choosing to “focus
on the merits of the filing, itself, as a Form A changing control filing.” J.A. at 762. In
October, following another Form A filing by the CenTra defendants, the Director held
a five-day hearing on the CenTra defendants’ fitness to control NAICO. He denied
their application because of concerns about the corporations’ financial condition and
competency, and the effects on the public interest. He extended the prohibition on
disposition of the shares until a hearing could be held to address the matter. The
Director later expanded the prohibition to cover all Chandler stock owned by the
defendants, regardless of the date of acquisition. The Department’s decision was
ultimately affirmed by the Nebraska Supreme Court. CenTra, Inc. v. Chandler Ins. Co.,
248 Neb. 844, 540 N.W.2d 318 (1995).
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In May 1995, the CenTra defendants and Agnes Moroun filed another Form A
to control NAICO. This application was dismissed on grounds of res judicata and
collateral estoppel, as well as lack of jurisdiction, due to the pending appeal of the
Director’s first decision. On October 4 and 5, Agnes Moroun and Can-Am separately
notified the Department of their intention to transfer Can-Am’s 1,441,700 Chandler
shares to Ms. Moroun. The Department responded that “NO ACTION, TRANSFER,
PURCHASE, SALE, ETC.” should occur until it could review the matter the following
week. J.A. at 598. The following Monday, Ms. Moroun informed the Department that
she had bought the Chandler stock and that the transaction could not be undone.
NAICO then filed suit in a state court, requesting seizure and sequestration of the
CenTra defendants’ Chandler holdings, pursuant to the NIHCSA.2 The defendants
removed the case to the District Court. The Department of Insurance intervened as a
plaintiff. In October 1995, the District Court3 issued a temporary restraining order
against transfer of the shares acquired in 1992 and ordered their deposit into the court
registry. In orders issued in July 1996 and March 1997, it dismissed the defendants’
affirmative defenses and counterclaims, found that the CenTra defendants had violated
the NIHCSA, and ordered divestiture of all their Chandler stock, regardless of the date
of acquisition. The Court also ordered the CenTra defendants to deposit in the court
registry all Chandler stock remaining in their possession, pending this appeal.
III.
We address several procedural issues before turning to the merits of the appeal.
First, NAICO and the Department contend that we do not have subject matter
2
This suit was their second, a 1992 suit having been dismissed because the
Department had granted the relief sought.
3
The Hon. Warren K. Urbom, United States District Judge for the District of
Nebraska.
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jurisdiction to consider this appeal. The District Court found that divestiture was a
proper remedy and directed the parties to “submit proposals for the orderly divestiture
and disposition of the Chandler stock owned by the CenTra defendants . . ..” Order at
15 (March 25, 1997). The order acted as an injunction to prevent the defendants from
doing anything with their Chandler stock. Taking the “liberal . . . and more reasonable”
view, preferred to the “strict and technical” one, we believe that the order was
sufficiently final to support our jurisdiction under 28 U.S.C. § 1291. Forgay v. Conrad,
6 How. 201, 203 (1848). The Court’s order adjudicated the CenTra defendants’ right
to their Chandler stock, and the parties’ specific plans for divestiture would be “but a
mode of executing the original decree.” Id. Alternatively, subject matter jurisdiction
would be proper under 28 U.S.C. § 1292(a), which provides for our jurisdiction over
interlocutory orders of the district courts “granting, continuing, modifying, refusing or
dissolving injunctions, or refusing to dissolve or modify injunctions . . ..” See Robert
M. v. Benton, 622 F.2d 370 (8th Cir. 1980) (if the district court granted “what amounts
to an injunction,” appellate jurisdiction is proper).
Second, we note that Agnes Moroun is bound by our decision only to the extent
that she may not accept, without further regulatory action, the 1,441,700 Chandler shares
that Can-Am and the other CenTra defendants unlawfully acquired. She is free to apply
for control of NAICO under the NIHCSA. The District Court found that “her fitness to
control NAICO has not been ruled on by the Department, nor has her alleged privity
with the CenTra defendants . . ..” Order at 15 (March 25, 1997). We agree that her
fitness was adjudicated neither in 1992, her name having been removed from the one
Form A filing on which she was initially included, nor in 1995, that filing having been
dismissed without reaching the merits. The District Court was correct to exclude her
from its order. We note the Court’s clarification that “two things still stand as
impediments to Agnes Moroun’s acquisition of the stock at issue. First, her acquisition
has not been approved by the Director pursuant to the NIHCSA. In addition, she
voluntarily withdrew a disclaimer of control on January 5, 1996. Therefore, she is
presumed to be a controlling person . . .. Second, the Director’s order prohibiting the
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disposition of the stock without his prior approval remains in effect.” Order at 12-13
(July 25, 1996).
Finally, the separate appeal of the CenTra defendants challenging the Court’s
1997 order to deposit their pre-1992 Chandler holdings into the court registry is moot.
As they themselves recognize, “[the] issues, here, have limited significance separate and
apart from the earlier appeals. When the court decides the first appeal it may moot this
one as the trial court’s order requiring delivery of the stock, by its terms, purports to
have a life that lasts only as long as appellate review of Nos. 97-2247 and 97-2551
requires.” Appellants’ Br. in No. 97-4039 at 1-2.
IV.
We affirm the District Court’s finding that the CenTra defendants violated the
NIHCSA. There was “no genuine issue as to any material fact” and, for the reasons set
forth in the District Court’s two opinions, NAICO and the Director were “entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c). The facts critical to the Court’s
decision were undisputed: notwithstanding the Department of Insurance’s clear
directions to the contrary, the CenTra defendants purchased Chandler stock that
constituted a controlling interest without the Department’s prior approval. As a matter
of law, NIHCSA prohibits transactions resulting in control without the prior approval of
the Department. Therefore, the CenTra defendants violated the NIHCSA. Further
discovery would not have changed these facts, and the Court’s denial of the CenTra
defendants’ discovery motions certainly was not a “gross abuse of discretion.” Bunting
v. Sea Ray, Inc., 99 F.3d 887, 890 (8th Cir. 1996).
The CenTra defendants’ arguments amount to an assertion that their violation of
the law was justified by the alleged misconduct and bad motives of NAICO
management. See Appellants’ Br. in Nos. 97-2247 and 97-2251 at 24-25. They
emphasize that they prevailed in separate litigation against NAICO on fraud, contract,
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and fiduciary obligation theories. However, as the District Court noted, they “have not
pointed to any statutory language, court ruling, or opinion of the Director that waives the
Act’s provision with respect to prior approval.” Order at 9 (March 25, 1997). Rather,
according to the terms of the statute, their concerns about NAICO management are
irrelevant to the disposition of this appeal.
Other “facts” that they argue to be disputed are issues of law, which did not
require trial. In particular, the CenTra defendants contend that the Court failed to
determine “[w]hether Disclaimers filed by the CenTra Applicants in 1992 were approved
by operation of law . . ..” Appellants’ Br. in Nos. 97-2247 and 97-2251 at 31. They
argue that, because disclaimers are approved unless denied by the Director, Neb. Rev.
Stat. § 44-2132(11), and the Director never denied theirs, their subsequent actions did
not require his approval through a Form A proceeding. We find this argument
disingenuous. The CenTra defendants filed their July 1992 disclaimer after a Form A
application for control. At the July 22 hearing, the examiner stated: “I will make a
ruling that your disclaimer filing has been dismissed. . . . We’re not going to get into
the collateral issues that are raised by the disclaimer in this proceeding. I don’t see those
as - as necessary- I think it’s a waste of our time and distracts us from what the real issue
is.” J.A. at 645. Instead of objecting, the CenTra defendants proceeded with their Form
A application, in effect abandoning their disclaimer of control. Any concerns they had
about the authority of the hearing examiner to make that decision should have been
raised at that time. As to the November 1992 disclaimer filing, the CenTra defendants’
reliance is contradicted by their agreement to suspend disclaimer proceedings until
further action, J.A. at 436, which never occurred.
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IV.
We also affirm the District Court’s remedy. The CenTra defendants argue that
the NIHCSA does not authorize divestiture. However, the statute allows the Court not
only to seize and sequester stock, but also to “issue such order with respect thereto as
may be appropriate to effectuate the act.” Neb. Rev. Stat. § 44-2142 (1993). As the
District Court noted, seizure and sequestration are procedures that necessitate and imply
a means of final disposition, such as divestiture. The Supreme Court of Nebraska, in this
same case, has held that the remedial powers granted by NIHCSA are not limited to
those it expressly enumerates, but rather should be construed broadly. CenTra, Inc. v.
Chandler Ins. Co., 248 Neb. at 857-58, 540 N.W.2d at 329 (“[T]he director should not
be impeded in his choices of remedy and protective measures by the enumerated powers
of the Act. The importance of the director’s duties as a watchdog for policyholders, and
the fact that the director is the only watchdog whose authority can bind applicants,
counsel in favor of a broad construction of the Act and the remedies provided therein.”)
(citation omitted).
Favoring a broad construction of the statute’s remedies, we also conclude that the
NIHCSA authorizes complete divestiture. The NIHCSA gives the court remedial power
over “any voting securities of the insurer owned directly or indirectly by [the statute-
violator],” Neb. Rev. Stat. § 44-2142 (1993) (emphasis added). It does not, on its face,
limit a court’s remedial power to only those securities whose acquisition constituted a
violation of the statute. We decline to impose such a restriction.
The District Court did not abuse its discretion in fashioning complete divestiture
as the appropriate remedy in this case. It considered the concerns set forth by the
Supreme Court in United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316 (1961):
“1. The duty of giving complete and efficacious effect to the prohibitions of the statute;
2, the accomplishing of this result with as little injury as possible to the interest of the
general public; and 3, a proper regard for the vast interests of private
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property which may have become vested in many persons as a result of the acquisition
either by way of stock ownership or otherwise . . . without any guilty knowledge or
intent in any way to become actors or participants in the wrongs which we find . . ..” Id.
at 327-28 (citation omitted). It found that divestiture was the only efficacious remedy;
that the public interest would be served by divestiture; and that divestiture would not
harm innocent individuals because “the CenTra defendants are closely held entities,
intimately tied to the Moroun family.” Order at 14 (March 25, 1997). In light of the
CenTra defendants’ “continued pattern or attempt . . . to maintain their holding and
control over the Chandler stock,” id. at 13, and the statute’s purposes, the Court’s
findings, and its order, were not an abuse of its discretion.
The CenTra defendants make the technical argument that neither NAICO nor the
Director of Insurance asked the Court for the remedy it granted. It is true that the statute
states that “the district court of Lancaster County may . . . upon the application of the
insurer or the director” issue remedial orders. Neb. Rev. Stat. § 44-2142 (1993).
However, the record belies this argument. In its Petition to Seize or Sequester and for
Temporary Relief before the District Court of Lancaster County, NAICO asked “[f]or
an order seizing and/or sequestering all stock owned by the Defendants pending the
decision of the Nebraska Supreme Court and thereafter to issue such orders as are
necessary with respect thereto as may be appropriate to effectuate the intention of the
Nebraska Insurance Holding Company System Act . . ..” J.A. at 15. Further, NAICO’s
and the Department’s separate motions for partial summary judgment each requested “an
order holding that complete divestiture of all of Defendants’ Chandler stock is necessary
. . ..” J.A. at 256, 478.
The CenTra defendants also argue that the remedy is inappropriate because their
Chandler shares had been disenfranchised by operation of NAICO’s corporate bylaws.
However, the statute does not support their contention that control requires active voting
rights. Rather, the statute provides that: “Control . . . shall mean the possession, direct
or indirect, of the power to direct or cause the direction of the
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management and policies of a person, whether through the ownership of voting securities
. . . or otherwise . . ..” Neb. Rev. Stat. § 44-2121(2).
We therefore affirm the orders of the District Court, except for the order directing
the deposit of shares in the registry of the Court pending this appeal, as to which the
appeal is dismissed as moot.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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