State of Georgia v. Sun States Insurance Group, Inc.; Regulatory Technologies, Inc. v. State of Georgia ( 2015 )

FIRST DIVISION
PHIPPS, C. J.,
ELLINGTON, P. J., and MCMILLIAN, J.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/
March 27, 2015
In the Court of Appeals of Georgia
A14A2119. STATE OF GEORGIA, EX REL., RALPH T.
HUDGENS, COMMISSIONER OF INSURANCE FOR THE
STATE OF GEORGIA v. SUN STATES INSURANCE
GROUP, INC.
A14A2120. REGULATORY TECHNOLOGIES, INC. v. STATE
OF GEORGIA, EX REL., RALPH T. HUDGENS,
COMMISSIONER OF INSURANCE FOR THE STATE OF
GEORGIA.
PHIPPS, Chief Judge.
The State of Georgia, on the relation of the Commissioner of Insurance, Ralph
T. Hudgens, served as liquidator of International Indemnity Company (“IIC”), an
insurance company in liquidation pursuant to the Insurers Rehabilitation and
Liquidation Act (the “Act”). Regulatory Technologies, Inc. (“Reg. Tech”) assisted in
the liquidation of the IIC estate. Sun States, Inc. (IIC’s sole shareholder) sought relief
from the trial court requiring the liquidator to be liable for money that Sun States
alleged was wrongfully taken out of the IIC estate, and requiring the liquidator to pay
its attorney fees.
In Case No. A14A2119, the State of Georgia on the relation of the
Commissioner of Insurance, Ralph T. Hudgens, as liquidator of IIC, appeals the trial
court’s denial of its motion to dismiss on the basis of sovereign immunity. In Case
No. A14A2120, Reg Tech joins in the appeal filed by the State of Georgia. For the
reasons set forth below, we affirm the judgment in part, reverse the judgment in part,
and remand the case.
“We review de novo a trial court’s denial of a motion to dismiss based on
sovereign immunity grounds, which is a matter of law. However, factual findings by
the trial court in support of its legal decision are sustained if there is evidence
authorizing them.”1
Pursuant to the Act,2 in January 2001 the Commissioner of Insurance of the
State of Georgia, then John W. Oxendine,3 was appointed by the superior court as the
1
Ga. Dept. of Corrections v. James, 312 Ga. App. 190, 193 (718 SE2d 55)
(2011) (punctuation and footnote omitted).
2
See OCGA § 33-37-1 et seq.
3
During the pendency of this matter in the lower court, Ralph T. Hudgens
became the Commissioner of Insurance for the State of Georgia (in January 2011),
and by operation of law, Hudgens was substituted for Oxendine as a party to this
2
liquidator of IIC.4 The liquidator then appointed a deputy liquidator (Donald Roof)
and an assistant deputy liquidator (Harry Sivley) to act for him in the liquidation of
the IIC estate.5 Sivley was the co-founding principal and chief executive officer of
Reg Tech, and according to Sivley, Reg Tech was an “integrated financial services
company formed to assist in the supervision, conservation, rehabilitation and
liquidation, of financial institutions and insurance companies.” Reg Tech assisted in
the liquidation of IIC.
After the liquidation of IIC was concluded, in March 2008 the State of Georgia
on the relation of the liquidator (hereinafter “state/liquidator”) sought an order from
the trial court approving the final accounting of the assets and expenses of the
liquidated estate and discharging the liquidator, deputy liquidator and assistant deputy
liquidator.6 Sun States, the sole shareholder of IIC, objected to the application for
discharge, to the extent of “any other distributions to [Sivley] or [Reg Tech] or their
action. See OCGA §§ 33-37-17 (a); 9-11-25 (d).
4
See OCGA § 33-37-17 (a).
5
See OCGA § 33-37-20 (a).
6
See OCGA § 33-37-45 (a), pertinently providing, “When all assets justifying
the expense of collection and distribution have been collected and distributed under
this chapter, the liquidator shall apply to the court for discharge.”
3
affiliates.”7 Sun States complained about, inter alia, administrative expenses8 charged
to the IIC estate, and asked the court to appoint an independent auditor to review “the
change and allocation of administrative costs by Reg Tech and its affiliates and
contractors to the IIC Estate.”
The court appointed an auditor, and almost sixteen months later (in February
2010), the auditor submitted a report to the court.9 The state/liquidator filed a
modified accounting and application for discharge, incorporating some, but not all,
of the credits (in the amount of $210,260.24) the auditor opined were due the IIC
estate. In response, the trial court ordered the liquidator to provide certain
explanations and additional data to the auditor, and ordered the auditor to supplement
his report if he deemed it necessary based on the additional information. In February
2012, as ordered, the state/liquidator supplemented its modified accounting and
application and provided additional information to the auditor, and further agreed that
7
Sun States moved to intervene, but the motion was not granted or otherwise
ruled on.
8
The statutory provision for the priority of distribution of claims identifies nine
classes of claims, of which the “[c]osts and expenses of administration during
rehabilitation and liquidation” is the first class in the order of distribution of claims,
and “shall be paid in full or adequate funds retained for such payment before the
members of the next class receive any payment.” OCGA § 33-37-41.
9
See OCGA § 33-37-48.
4
additional credits should be made to the IIC estate (in the amount of $433,569.71).
But the state/liquidator continued to refute allegations that the IIC estate had been
charged excessive administrative expenses in the form of contract compensation,
payroll, or overhead expenses for Reg Tech. The state/liquidator asserted that Reg
Tech and/or Sivley had drawn funds directly from the IIC estate during the liquidation
process to cover the costs of administration expenses, and that it had been done with
little or no oversight from the liquidator. The auditor’s supplemental report, however,
continued to raise issues as to these administrative expenses (payroll expenses,
overhead expenses and contractual compensation expenses).
In August 2012, a joint pretrial order was entered. Therein, Sun States stated
that it sought an order “surcharging” the liquidator, deputy liquidator, assistant deputy
liquidator, and Reg Tech for excessive overhead expenses, over-allocation of
contractual compensation, and excessive salary and benefits to Reg Tech personnel
– matters identified in the audit. Sun States also sought attorney fees. The
state/liquidator then moved to join Reg Tech as an indispensable party to the
litigation; the trial court granted the motion, designating Reg Tech as a “respondent
to the pending objection by shareholder [Sun States] to the Liquidator’s Modified
Accounting.” Approximately nine months later (in June 2013), the state/liquidator
5
moved to dismiss Sun States’s claims against it, asserting that they were claims for
a money judgment against the state; the state/liquidator asserted that the claims were
barred by the doctrine of sovereign immunity.
The trial court ruled that the State of Georgia, through the Act, had waived
sovereign immunity to the extent that the court could order the liquidator to “repay,”
or in other words to put back into, the liquidation estate any administrative expenses
that were excessive or had been improperly removed from the IIC estate. The trial
court also ruled that it had the authority to award attorney fees to Sun States (and
thus, would permit evidence on the issue of attorney fees at trial).
Case No. A14A2119
1. The state/liquidator contends that the trial court erred by denying its motion
to dismiss and in finding that sovereign immunity was waived by the Act. We agree.
“[S]overeign immunity protects from tort liability the State itself, including its
agencies and instrumentalities[.]”10 “Suits against public employees in their official
capacities are in reality suits against the state and, therefore, involve sovereign
immunity. The doctrine of sovereign immunity, also known as governmental
10
Shekhawat v. Jones, 293 Ga. 468, 470 (1) (746 SE2d 89) (2013) (citation
omitted).
6
immunity, protects all levels of governments from legal action unless they have
waived their immunity from suit.”11
Article I, Section II, Paragraph IX (e) of the Georgia Constitution
provides that “[t]he sovereign immunity of the state and its departments
and agencies can only be waived by an Act of the General Assembly
which specifically provides that sovereign immunity is thereby waived
and the extent of such waiver.” In this regard, implied waivers of
governmental immunity should not be favored. This does not mean,
however, that the Legislature must use specific “magic words” such as
“sovereign immunity is hereby waived” in order to create a specific
statutory waiver of sovereign immunity.12
A government waives sovereign immunity when an Act’s language provides both that
sovereign immunity is waived, and the extent of any waiver.13
Even assuming that the trial court was correct that the Act impliedly provided
that sovereign immunity was waived by the provisions of the Act which give the
supervising court “wide” powers in reviewing expenses and permit the court to audit
11
Cameron v. Lang, 274 Ga. 122, 126 (3) (549 SE2d 341) (2001) (punctuation
and footnote omitted).
12
Colon v. Fulton County, 294 Ga. 93, 95 (1) (751 SE2d 307) (2013) (citations
and punctuation omitted).
13
See Ga. Dept. of Corrections, supra at 194 (1), n. 17.
7
the books of the estate in liquidation,14 provide that the results of any such audit are
to be filed with the court,15 mandate that at the end of the liquidation the liquidator
shall apply to the court for discharge,16 and authorize the supervising court to grant
the discharge and make any other orders as may be deemed appropriate,17 the Act fails
to state the extent of any waiver except where the damage, loss, injury or liability
claimed was caused by the intentional or willful and wanton misconduct of the
receiver or an employee of the receiver, which exception this opinion addresses in
Division 2, infra.18
14
OCGA § 33-37-48.
15
Id.
16
OCGA § 33-37-45 (a).
17
Id.
18
See OCGA § 33-37-8.1 (b), which provides:
The receiver and his or her employees shall have official immunity and
shall be immune from suit and liability, both personally and in their
official capacities, for any claim for damage to or loss of property,
personal injury, or other civil liability caused by or resulting from any
alleged act, error, or omission of the receiver or any employee arising
out of or by reason of their duties or employment, provided that nothing
in this provision shall be construed to hold the receiver or any employee
immune from suit or liability for any damage, loss, injury, or liability
caused by the intentional or willful and wanton misconduct of the
8
In this case, the trial court relied, in part, on Colon v. Fulton County,19 to
conclude that sovereign immunity was waived by the Act. In Colon, the Supreme
Court of Georgia held that where, as in that case, the legislature had
specifically created a right of action against the government that would
otherwise be barred by sovereign immunity, and ha[d] further expressly
stated that an aggrieved party was entitled to collect money damages
from the government in connection with a successful claim under the
statute, there can be no doubt that the Legislature intended for sovereign
immunity to be waived with respect to the specific claim authorized
under the statute.20
In Colon, the statutory provision that granted a public employee the right to
bring an action against his employer for retaliation specifically provided that the
waiver was limited to injunctive relief, reinstatement of the employee to employment,
reinstatement of fringe benefits and seniority rights, compensation for lost wages,
receiver or any employee.
Pursuant to OCGA § 33-37-8.1 (a) (2), the term “employees” means “all present and
former special deputies and assistant special deputies appointed by the Commissioner
and all persons whom the Commissioner, special deputies, or assistant special
deputies have employed to assist in a delinquency proceeding under this chapter.”
19
Supra.
20
Id. at 95-96 (1) (citations omitted).
9
benefits, other remuneration, and any other compensatory damages allowable at law.21
In City of Atlanta v. Barnes,22 upon which the Supreme Court relied in Colon,23 a tax
statute which provided the right to bring an action for a tax refund against a
governmental body established that the extent of the waiver was the amount of the
refund, and thus, sovereign immunity was waived.24 And in Williamson v. Dept. of
Human Resources,25 another case upon which the Supreme Court relied in Colon,26
the Fair Employment Practices Act27 (“FEPA”), which created a right of action
against the state, as an employer, for discrimination on the basis of an employee’s
21
Id. at 96 (1); OCGA § 45-1-4 (e).
22
276 Ga. 449 (578 SE2d 110) (2003), overruled on other grounds as stated in
Sawnee Electrical Membership Corp. v. Ga. Dept. of Revenue, 279 Ga. 22, 25 (3), n.
1 (608 SE2d 611) (2005).
23
Supra at 95 (1).
24
City of Atlanta, supra at 451 (3) (pertinent tax statute provided: “Any
taxpayer whose claim for refund is denied by the governing authority of the county
or municipality or whose claim is not denied or approved by the governing authority
within one year from the date of filing the claim shall have the right to bring an action
for a refund in the superior court of the county in which the claim arises.”).
25
258 Ga. App. 113 (572 SE2d 678) (2002).
26
Supra at 95 (1).
27
See OCGA § 45-19-20 et seq.
10
disability,28 provided that such action could result in a judgment for, inter alia, hiring,
reinstatement, or upgrading of employees with or without back pay; the extension of
the full and equal enjoyment of the advantages, facilities, privileges, and services of
the respondent; and restoration of employment benefits not otherwise specified in the
code section.29 The FEPA also provided that any monetary award ordered shall be for
actual damages only.30 Thus, the state by legislative act had specifically waived its
sovereign immunity to the extent of the action authorized by the FEPA.31
In this case, none of the provisions of the Act upon which the trial court based
its judgment that the state had waived sovereign immunity, either independently or
collectively, provide the extent of any such waiver of sovereign immunity, i.e., any
specific relief recoverable by an aggrieved party, such as the right to collect money
damages from the government in connection with a successful claim under the Act.32
Therefore, the trial court’s order is reversed to the extent of its judgment: (1) that the
28
OCGA §§ 45-19-21 (a) (3); 45-19-36 (b).
29
Williamson, supra at 116 (1); OCGA § 45-19-38 (c).
30
OCGA § 45-19-38 (d).
31
Williamson, supra.
32
See Colon, supra at 95-96 (1); City of Atlanta, supra; Williamson, supra.
11
government waived sovereign immunity pursuant to the specified provisions of the
Act; (2) that those specified provisions authorized the trial court to order the
liquidator to repay the liquidation estate administrative expenses that were allegedly
wrongfully removed from the liquidation estate; and (3) that attorney fees may be
awarded to Sun States under the specified provisions.
2. The state/liquidator contends that the trial court erred by finding that OCGA
§ 33-37-8.1 (b) did not apply to an application for discharge. However, the trial court
made no such finding.
After concluding that the State, through the specified “statutory framework”
of the Act, waived sovereign immunity, the trial court turned to a specific provision
of the Act, OCGA § 33-37-8.1 (b). Without concluding that the statute was not
applicable in the case, the court stated that “even if OCGA § 33-37-8.1 (b) were
applicable to objections regarding a Liquidator’s application for discharge, it provides
no immunity ‘for any damage, loss, injury, or liability caused by the intentional or
willful and wanton conduct of the receiver or any employee.’”
The court concluded that (during the course of the hearing on the liquidator’s
request for discharge) evidence could be introduced to show that the intentional or
wanton conduct of the liquidator or his deputies permitted the payment of excessive
12
or improper administrative expenses of the IIC estate. The court cited the following
as a basis for its ruling: the close and longstanding relationship between the former
Insurance Commissioner (who was the liquidator) and Reg Tech (whose principal
was Sivley, the assistant deputy liquidator); Sivley’s company, Reg Tech, had been
permitted to charge millions of dollars against the IIC estate pursuant to what was
“essentially” an oral business arrangement; Sivley and Reg Tech had been provided
“great latitude” to charge expenses against the IIC estate with little or no
contemporaneous review from the liquidator as to the propriety of the charges or their
amounts; the record suggested that the books involving this liquidation were in
disarray; it took a lengthy time to complete the court-ordered audit, in part, because
key records were lacking; and, years after seeking a discharge, the liquidator
continued to discover significant new expenses and accounting issues related to the
IIC estate.
We construe the court’s language concerning the applicability of OCGA § 33-
37-8.1 (b) as the court reaching an alternative basis upon which to deny the
state/liquidator’s motion to dismiss, not as a ruling that OCGA § 33-37-8.1 (b) did
not apply to this matter. The state/liquidator opposed Sun States’s argument that
OCGA § 33-37-8.1 did not apply. Accordingly, the trial court’s ruling that it would
13
consider further evidence in connection with the applicability of OCGA § 33-37-8.1
(b) to this matter is affirmed, and we remand this case to the trial court for
consideration of Sun States’s objections related thereto and to the relief Sun States
seeks in accordance with OCGA § 33-37-8.1 (b).
Case No. A14A2120
3. In light of the conclusions reached in Divisions 1 and 233 in Case No.
A14A2119, we need not address Reg Tech’s arguments in Case No. A14A2120; Reg
Tech had joined in the appeal filed by the State of Georgia. The judgment of the trial
court is affirmed in part, reversed in part, and the case is remanded as set forth in
Case No. A14A2119.
Judgment in Case No. A14A2119 affirmed in part and reversed in part, and
case remanded. Ellington, P.J., concurs. McMillian, J., concurs in Division 1 and
concurs in judgment only as to Division 2.
Judgment in Case No. A14A2120 affirmed in part and reversed in part, and
case remanded. Ellington, P.J., and McMillian, J., concur.
33
Supra.
14