Ito v. Investors Equity Life Holding Company. , 135 Haw. 49 ( 2015 )

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Electronically Filed
Supreme Court
SCAP-10-0000131
27-FEB-2015
08:23 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
GORDON ITO, Insurance Commissioner of the State of Hawai#i,
Petitioner-Appellee,
vs.
INVESTORS EQUITY LIFE HOLDING COMPANY,
a Delaware Corporation, Appellant,
and
HAWAII LIFE AND DISABILITY INSURANCE GUARANTY ASSOCIATION,
Appellee,
and
INVESTORS EQUITY LIFE INSURANCE COMPANY OF HAWAII, LTD.,
a Hawai#i Corporation, Respondent.
SCAP-10-0000131
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(S.P. NO. 94-0337)
FEBRUARY 27, 2015
NAKAYAMA, ACTING C.J.,
CIRCUIT JUDGE NACINO, IN PLACE OF RECKTENWALD, C.J., RECUSED,
CIRCUIT JUDGE TRADER, IN PLACE OF McKENNA, J., RECUSED, AND
CIRCUIT JUDGE LEE IN PLACE OF WILSON, J., RECUSED,
WITH POLLACK, J. DISSENTING
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OPINION OF THE COURT BY NAKAYAMA, J.
I. INTRODUCTION
Investors Equity Life Holding Company (IELHC) is the
former parent company and sole shareholder of Investors Equity
Life Insurance Company of Hawaii, Ltd. (IEL). In 1994 IEL was
liquidated, thus creating the IEL estate. The State of Hawai#i
Insurance Commissioner (Commissioner) was appointed as IEL’s
liquidator (Liquidator). This case concerns the Liquidator’s
denial of IELHC’s purported claim to all remaining assets of the
IEL estate.
In 1996, IELHC surrendered all of its shares in IEL to
the Commissioner as part of a settlement agreement to resolve
claims relating to IEL’s insolvency. The Liquidator canceled
IELHC’s shares in IEL and issued new shares in IEL to the Hawaii
Life and Disability Insurance Guaranty Association (HLDIGA).1 As
consideration for these new shares in IEL, HLDIGA cancelled
$249,975 of its claims against IEL’s estate arising out of its
subrogation of covered IEL policyholders’ claims.
The Liquidator proceeded to administer IEL’s estate --
marshaling assets, distributing funds, and filing interim
reports. More than eleven years elapsed before, in 2008, IELHC
1
The Hawai#i legislature created HLDIGA pursuant to Hawai#i Revised
Statutes (HRS) § 431:16-201 (2005), to protect policyholders of insolvent life
and disability insurance companies by providing them with continued coverage.
2
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wrote the Liquidator two letters claiming that IELHC presently
held legal or equitable title to all of IEL’s stock and demanding
that the Liquidator deliver to IELHC all shares and assets
remaining in IEL’s estate.
After failing to resolve the dispute through mediation,
IELHC filed a lawsuit in the Superior Court of California against
current and former Insurance Commissioners, as well as other
individuals involved in the liquidation of IEL (the California
Lawsuit). The action was stayed on the grounds of forum non
conveniens.2
In 2009, the Liquidator determined that IELHC’s letters
and its California Lawsuit constituted a claim against IEL’s
estate. The Liquidator denied the claim, and his determination
was upheld by order of the Circuit Court of the First Circuit
(circuit court).
IELHC appealed to the Intermediate Court of Appeals
(ICA) and applied for mandatory and discretionary transfer to
this court. We accepted IELHC’s application for discretionary
transfer on the grounds that the appeal presents a question of
first impression of whether IELHC’s letters to the Liquidator and
the California Lawsuit constituted a claim against IEL’s estate
2
Black’s Law Dictionary 770 (10th ed. 2014) defines forum non
conveniens as “[t]he doctrine that an appropriate forum -- even though
competent under the law -- may divest itself of jurisdiction if, for the
convenience of the litigants and the witnesses, it appears that the action
should proceed in another forum in which the action might also have been
properly brought in the first place.”
3
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under Hawai#i Revised Statutes (HRS) § 431:15-329 (2005).
In its opening brief, IELHC raises five points of
error3: (1) “The circuit court below had no subject matter
jurisdiction to confirm an ‘IELHC claim’ which [Commissioner]
Schmidt himself contrived, but which appellant has not brought”;
(2) “The circuit court had no personal jurisdiction over
appellant”; (3) “Because the California lawsuit is a prior
pending action, the ‘IELHC claim’ which [Commissioner] Schmidt
invented must be abated”; (4) “The summary procedures utilized by
the circuit court denied appellant’s rights to due process”; and
(5) “Even if appellant had brought the ‘IELHC claim,’ which
appellant had not, [Commissioner] Schmidt is judicially estopped
from asserting that appellant’s claim is too late.” We hold that
the circuit court did not err in concluding that IELHC asserted a
claim against IEL’s estate and that this claim was time barred.
Furthermore, the circuit court had personal jurisdiction over
IELHC and subject matter jurisdiction over IELHC’s claim, there
were no grounds for abating the adjudication of IELHC’s claim,
and the circuit court’s procedures met constitutional due process
requirements.
3
The section of IELHC’s opening brief entitled “Statement of the
Points of Error on Appeal” contains fifteen unnumbered paragraphs citing
various Findings of Fact and Conclusions of Law from the circuit court’s order
that the brief purports to challenge. However, IELHC does not set out
specific arguments regarding these points in the arguments section of its
brief. Instead, the argument section is divided into five subsections which
are characterized as the points of error.
4
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II. BACKGROUND
A. The liquidation of Investors Equity Life Insurance Company
of Hawaii
IEL was an insurer whose business consisted of deferred
annuities and traditional and interest-sensitive life insurance
policies. On August 5, 1994, then State of Hawai#i Insurance
Commissioner Lawrence Reifurth commenced an insurance insolvency
proceeding by filing a petition for the liquidation of IEL in the
circuit court, pursuant to the Insurers Supervision,
Rehabilitation and Liquidation Act (ISRLA),4 HRS §§ 431:15-306
(1993)5 and 431:15-301 (1993). IEL had a net deficit in excess
4
The purpose of ISRLA then, as it is now, was:
[T]he protection of the interests of insureds, claimants,
creditors, and the public generally, with minimum
interference with the normal prerogatives of the owners and
managers of insurers, through:
(1) Early detection of any potentially dangerous condition
in an insurer, and prompt application of appropriate
corrective measures;
(2) Improved methods for rehabilitating insurers,
involving the cooperation and management expertise of
the insurance industry;
(3) Enhanced efficiency and economy of liquidation,
through clarification of the law, to minimize legal
uncertainty and litigation;
(4) Equitable apportionment of any unavoidable loss;
(5) Lessening the problems of interstate rehabilitation
and liquidation by facilitating cooperation between
states in the liquidation process, and by extending
the scope of personal jurisdiction over debtors of the
insurer outside this State; and
(6) Regulation of the insurance business by the impact of
the law relating to delinquency procedures and
substantive rules on the entire insurance business.
HRS § 431:15-101(d) (1993).
5
The Commissioner cited HRS § 431:15-306 as the statutory authority
for the liquidation order. The statute provided then, as it does now:
(continued...)
5
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of $90,000,000, and the Commissioner had seized its assets on
June 22, 1994.
The petition for liquidation sought liquidation on the
grounds that IEL was insolvent and that attempts to rehabilitate
IEL would substantially increase the risk of loss to
policyholders, would be futile, and would serve no useful
purpose.6
Appellant IELHC -- IEL’s parent company and sole
shareholder -- intervened in the proceeding by stipulation of the
5
(...continued)
The commissioner may petition the circuit court of the
first judicial circuit for an order directing the
commissioner to liquidate a domestic insurer or an alien
insurer domiciled in this State on any ground on which the
commissioner may apply for an order of rehabilitation under
section 431:15-301, whenever the commissioner believes that
attempts to rehabilitate the insurer would substantially
increase the risk of loss to its creditors, its
policyholders or the public, or would be futile, or that
rehabilitation would serve no useful purpose, whether or not
there has been a prior order directing the rehabilitation of
the insurer.
HRS § 431:15-306.
6
The Commissioner cited HRS § 431:15-301 as providing the following
grounds for the basis of the petition for liquidation:
(1) The insurer is insolvent;
(2) The insurer is in such condition that the further
transaction of business would be hazardous,
financially, to its policyholders, creditors or the
public;
. . . .
(12) The insurer has failed to file its annual report or
other financial report required by statute within the
time allowed by law and, after written demand by the
commissioner, has failed to give an adequate
explanation immediately . . .
6
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parties. IELHC opposed the petition for liquidation and
petitioned for approval of a rehabilitation plan wherein IELHC
would contribute assets to IEL that would generate a potential
cash flow of more than $87,000,000.
The circuit court7 concluded that IELHC’s
rehabilitation plan was “not reasonable or feasible.” The court
further concluded that, pursuant to HRS § 431:15-104(c) (1993),
only the Commissioner could seek approval of a rehabilitation
plan and, pursuant to HRS § 431:15-305 (1993), only directors of
an insurer could object to a petition for liquidation. The court
granted the petition for liquidation, ordered the liquidation of
IEL under the Commissioner’s supervision, appointed the
Commissioner as liquidator of IEL, and directed the Liquidator to
take possession of IEL’s assets and administer them under the
general supervision of the court. Judgment on the petition for
liquidation was entered in favor of the Commissioner and against
IEL and IELHC on January 27, 1995.
IELHC appealed the judgment. The appeal was dismissed
by a January 11, 1996 opinion of this court, holding that IELHC
did not have standing to oppose the petition to liquidate IEL
because HRS § 431:15 did not recognize the interests of
shareholders -- such as IELHC -- of an insolvent insurer. See
Metcalf v. Investors Equity Life Ins. Co., 80 Hawai#i 339, 340,
7
The Honorable Patrick K.S.L. Yim presided.
7
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910 P.2d 110, 111 (1996) (hereinafter Metcalf v. IEL).8
During the pendency of the appeal, the circuit court,9
by order on August 23, 1995, approved the Liquidator’s
liquidation plan for the disbursement of IEL’s assets. The order
established a claims bar date of December 1, 1995 for the
submission of creditor claims to IEL assets. The order also
approved a service agreement between the Liquidator and HLDIGA
and approved disbursements to HLDIGA. Under the agreement,
HLDIGA assumed policy coverage for the vast majority of
policyholders -- all but about 100 of approximately 13,000 -- and
the policyholders covered by HLDIGA were deemed to have assigned
and subrogated all of their claims against IEL’s estate to
HLDIGA. As of November 30, 1995, HLDIGA had $143,000,000 in
claims against IEL’s estate due to HLDIGA’s assumption of IEL’s
policyholder liabilities.
As part of the liquidation plan, on March 22, 1995, the
Liquidator, HLDIGA, and Hartford Life Insurance Company
(Hartford),10 the assuming insurer, entered into an Assumption
Reinsurance Agreement, which was approved by the circuit court on
8
Wayne Metcalf succeeded Lawrence Reifurth as Insurance
Commissioner in 1995.
9
The Honorable Virginia L. Crandall presided during the hearing.
The Honorable Wendell K. Huddy issued the order.
10
The Liquidator and HLDIGA chose Hartford after an extensive
bidding process in which several healthy insurance companies submitted offers
to assume IEL’s policies in exchange for funds from IEL’s estate and HLDIGA.
Hartford was selected because its bid offered the greatest benefit to IEL
policyholders and creditors.
8
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June 21, 1995.11 Under the agreement, Hartford reinsured all of
IEL’s policyholders previously assumed by HLDIGA. HLDIGA
retained continuing obligations to contribute to the funding of
the policies Hartford assumed.
B. The Commissioner’s lawsuit against Investors Equity Life
Holding Company
Contemporaneously with the liquidation of IEL, then-
Commissioner Lawrence Reifurth brought suit against IELHC and
Gary Vose (the sole shareholder, director, and President of
IELHC), among others, for alleged tortious misconduct in causing
the failure of IEL. The Commissioner’s complaint, filed
November 17, 1994, alleged that IELHC diverted IEL’s assets into
risky investments and reckless real estate transactions,
primarily for the benefit of non-IEL entities. IELHC settled the
lawsuit with the Commissioner by executing a settlement agreement
on July 16, 1996. As a condition of settlement, the agreement
provided that IELHC surrender to IEL all of its shares in IEL for
cancellation and forfeiture. On October 9, 1996, Gary Vose, on
behalf of IELHC, surrendered 208,693 shares of IEL to
Commissioner Metcalf, for “cancellation and forfeiture pursuant
to HRS § 431:5-101.” To evidence the surrender, Gary Vose
executed a document entitled “Stock Surrender and Forfeiture,” to
which he attached the original stock certificate.
11
The Honorable Virginia L. Crandall presided.
9
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The circuit court,12 in the liquidation proceeding,
held a hearing on the Motion to Approve Settlement Agreement on
October 28, 1996 and approved the agreement on November 8, 1996.
Counsel for IELHC appeared at the hearing. On November 27, 1996,
IELHC, through its president Gary Vose, executed a Waiver of
Right of Appeal of Order Granting Liquidator’s Motion to Approve
Settlement Agreement, in which it “waive[d] and release(d) any
and all rights [it had], or may in the future have, to appeal
from, or otherwise seek judicial review or reconsideration of,
the Order Granting Motion to Approve Settlement Agreement,
including any and all written orders, findings of fact,
conclusions of law, decisions and/or judgments relating to the
Order Granting Motion to Approve Settlement Agreement.”
On November 12, 1996, the Liquidator executed a stock
subscription agreement between IEL and HLDIGA. Through this
agreement, the Commissioner issued 49,500 new shares of IEL stock
to HLDIGA. In exchange, HLDIGA canceled $249,975 of its
$143,000,000 in claims against the IEL estate resulting from its
assumption of IEL’s policyholder liabilities and its continuing
obligations to Hartford. HLDIGA established the Hawaii
Association Grantor Trust, overseen by Buck & Associates with
Fred Buck as trustee, to hold the shares. The agreement stated
that IEL had 208,693 outstanding shares of capital stock held by
12
The Honorable Elwin Ahu presided.
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IELHC, owned by Gary Vose, and that IELHC had agreed to surrender
the issued stock for cancellation and forfeiture under its
settlement agreement with the Liquidator. The stock subscription
agreement pledged that, simultaneously with the surrender and
cancellation of all shares of IEL common stock held by IELHC, IEL
would issue 49,500 shares of common stock to the Hawaii
Association Grantor Trust for the benefit of HLDIGA.
The Liquidator filed a motion to approve the amendments
to settlement agreement and to approve the stock subscription
agreement on December 12, 1996 and served IELHC with the motion
and notice of hearing. The amendments to the agreement were
attached to the motion as Exhibit A, and the stock subscription
agreement was attached as Exhibit 1 to Exhibit B.13 On
December 27, 1996, at the hearing on the motion, counsel for
IELHC, Kimble Cook and Lyle Hosoda, appeared and stated that
IELHC had no objections.14 The circuit court,15 in the
liquidation proceeding, approved the agreement on December 30,
13
Though the exhibits to the motion are not included in the record,
Judge Nakatani referenced the exhibits in her order, as did counsel for IELHC
during his appearance on December 27, 1996.
14
IELHC’s counsel Mr. Cook stated:
“We have no objections to Exhibit A, which is the first
amendment to the settlement agreement. Exhibit B and
Exhibit 1 that they’ve also attached is a separate
subscription agreement. I just want to make it clear that
that’s not part of the settlement agreement. And we have no
–- basically no position on that.”
15
The Honorable Gail C. Nakatani presided.
11
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1996.
C. IELHC’s claims to the ownership and property of IEL
The Liquidator proceeded to administer IEL’s assets,
make partial distributions of funds to HLDIGA, and file interim
reports with the circuit court.16 The Liquidator’s February 27,
2008 report showed a deficit of approximately $13,000,000 in
IEL’s estate as of December 31, 2008.
HLDIGA remains a significant creditor of IEL’s estate.
In 2002, it submitted an updated Proof of Claim asserting a claim
against IEL for $174,961,455 as a Class 217 and Class 418 creditor
and for the residual amount of the estate as a Class 919
creditor, as the sole shareholder of IEL. At that time, the
claim had been partially satisfied, leaving a claim amount of
$38,580,355 plus HLDIGA’s shareholder claim for any residual
assets in IEL’s estate. Since then, the Liquidator has
16
The first such report appearing in the record was filed December
22, 1995. This report shows that, as of November 30, 1995, IEL had a net
deficit of $101,724,000 and outstanding liabilities to HLDIGA of $143,000,000.
17
At the time of HLDIGA’s filing of a proof of claim, HRS § 431:15-
332 (1993) stated: “[t]he priority of distribution of claims from the
insurer’s estate shall be in accordance with the order in which each class of
claims is herein set forth. Every claim in each class shall be paid in full
or adequate funds retained for the payment before the members of the next
class receive any payment.” Class 2 claims included, “[t]he reasonable
expenses of a guaranty fund or association, or foreign guaranty association in
handling claims.” HRS § 431:15-332(b).
18
At the time of HLDIGA’s claim, Class 4 claims included, “[a]ll
claims under policies for losses incurred, including . . . all claims of a
guaranty fund or association or foreign guaranty association.” HRS § 431:15-
332(d).
19
At the time of HLDIGA’s claim, Class 9 claims included, “[t]he
claims of shareholders or other owners.” HRS § 431:15-332(i).
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distributed $3,336,943 to HLDIGA for administrative expenses
incurred. As of 2009, the Liquidator’s records showed an
outstanding creditor claim of $35,243,412 to HLDIGA, not
including any additional amount that may be due for
administrative expenses incurred and interest accrued since the
date of its claim.
On April 23, 2008, IELHC wrote then Liquidator J.P.
Schmidt a letter (first letter), claiming that the February 27,
2008 report “materially misstated and misrepresented” the
financial condition of IEL’s estate and that the estate had a
surplus of more than $21,000,000, not a deficit.20 IELHC also
claimed that the Commissioner’s 1996 “taking,” or “attempt at
such taking,” of IEL’s stock was “not in accordance” with Hawai#i
law and that the disposition of the stock to HLDIGA was a
“further taking without just compensation and ultra vires acts
beyond the statutory authority of the Insurance Commissioner.”
Consequently, IELHC claimed that it presently had “equitable
title, legal title, or both to IEL’s stock” and demanded that the
Commissioner deliver “all authorized, issued, and outstanding
shares of stock of IEL” and distribute “the remaining surplus of
20
IELHC reached this conclusion from observing that the February 27,
2008 report showed a net liability of $35,243,412 to HLDIGA and a net deficit
(negative net worth) of $13,728,856. IELHC asserts that any liability to
HLDIGA is false and therefore must be removed from the balance sheet.
Subtracting negative $35,243,412 from a negative net worth of $13,728,856,
results in a net surplus (positive net worth) of $21,514,556 ((-13,728,856) -
(-35,243,412)= + 21,514,556).
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the estate.”
IELHC reasserted title to IEL’s stock in a July 2, 2008
letter to the Liquidator (second letter). The second letter
stated that the Liquidator’s and HLDIGA’s claims to ownership of
IEL’s stock were “far from free and clear, and are subject to
doubt and dispute.” IELHC posited that its surrender of IEL
shares made the shares “forfeitable,” but not necessarily
“forfeited.” Citing the statute governing the “Impairment of
Capital,” HRS § 431:5-101 (2005),21 IELHC asserted that “[u]nless
and until [the shares were] actually forfeited, they necessarily
remain[ed] IEHLC’s [sic] shares even though the insurance
Commissioner [sic] may have physical possession of them.” IELHC
suggested that the parties employ a professional mediator and
seek “a mutually agreeable resolution.”
The Commissioner and IELHC participated in voluntary
21
HRS § 431:5-101 provided then, as it does now, in pertinent part:
(a)(1) A domestic stock insurer’s capital stock shall be
deemed to be impaired if its qualified assets at any time
are less than its liabilities, including its capital stock
as a liability.
(2) If a domestic insurer’s capital stock is deemed to be
impaired, the commissioner shall at once determine the
amount of the deficiency and serve notice upon the insurer
to cure the deficiency within ninety days after service of
such notice.
. . . .
(c) Shares as to which such an assessment, made pursuant to
this section, is not paid within sixty days after demand,
shall be forfeitable and may be canceled by vote of the
directors and new shares issued to make up the deficiency.
(Emphasis added).
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formal mediation through the end of 2008, but they were unable to
negotiate a resolution of IELHC’s claims.
On May 4, 2009, IELHC filed a complaint in the
California Superior Court against: then-Commissioner Schmidt;
former-Commissioner Reifurth; HLDIGA; Hawaii Association Grantor
Trust; Buck & Associates and Fred Buck as trustees of the Hawaii
Association Grantor Trust; Kerry Komatsubara in his individual
and official capacity as Special Deputy Liquidator of IEL;
Timothy Bogan in his capacity as the Former Chief Examiner of the
Hawai#i Division of Insurance; and McCorriston Miho Miller Mukai
LLP, and William McCorriston and John Yamano individually, as
Commissioner Schmidt’s former attorneys. The complaint
reasserted IELHC’s claims of a surplus in IEL’s estate and of an
unconstitutional taking of its IEL stock, as well as claims for
denial of due process and equal protection, unreasonable seizure,
unconstitutional taxation, fraud, negligent misrepresentation,
breach of fiduciary duty, conversion, unfair competition, civil
conspiracy, and aiding and abetting.
In the complaint, IELHC specifically asserted that it
had demanded all outstanding shares of IEL stock and made a claim
to distributions from IEL’s estate:
56. Promptly upon discovery of the relevant facts and
circumstances giving rise to this action, by letter sent on
April 23, 2008 Plaintiff served a demand upon Schmidt,
through their respective attorneys, for Schmidt to deliver
to Plaintiff all of the authorized, issued, and outstanding
shares of stock of IEL, and any certificates representing
said shares; and claim to distribution of the monies and
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assets remaining in the estate of IEL.
57. Schmidt has failed and refused to deliver to Plaintiff
all of the authorized, issued, and outstanding shares of
stock of IEL, and any certificates representing said shares;
and claim to distribution of the monies and assets remaining
in the estate of IEL.
The complaint sought compensatory damages of $60,000,000,
punitive damages, an accounting, an injunction, a constructive
trust over all assets in IEL’s estate, restitution, declaratory
relief, and attorneys’ fees. The complaint specifically sought a
declaration that IELHC “has legal and equitable right, title and
interest in the monies and assets remaining in the estate of and
in IEL’s stock, and shares, certificates, and value of such
stock.”
By order dated October 6, 2009, the Superior Court of
the State of California stayed the action, on motion by the
Commissioner, on grounds of forum non conveniens. The California
Court of Appeal affirmed the order by opinion dated May 31, 2011.
Investors Equity Life Holding Co. v. Schmidt, 126 Cal. Rptr. 3d
135, 139 (Cal. Ct. App. 2011) (hereinafter IELHC v. Schmidt).
The court reasoned that the only significant question on appeal
was whether Hawai#i constituted a suitable alternative forum in
light of the possible expiration of the statute of limitations.
Id. at 142-43. It stated:
Defendants have agreed to toll the statute of
limitations from February 25, 2009, the date plaintiff filed
its California action, to the date plaintiff files suit in
Hawaii. Their second stipulation makes clear that, if this
action is refiled in Hawaii, one issue will be the
timeliness of any claims time barred in that state as of
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February 25, 2009. . . . In addition, they argue Hawaii,
like California, recognizes the delayed accrual of a claim
where the plaintiff is reasonably ignorant of it, plus the
tolling of a statute of limitations where a defendant
conceals the existence of a cause of action.
Id. at 144. Because IELHC would face the same burden of
establishing the timeliness of its claim in California or
Hawai#i, the California Court of Appeal concluded that the trial
court’s stay was proper. Id. at 146.
D. Adjudication of IELHC’s claims against IEL’s estate
On November 20, 2009, the Liquidator issued a Notice of
Determination of Claim Submitted by [IELHC] pursuant to HRS §
431:15-329(a).22 In the Notice of Determination, the Liquidator
stated that IELHC’s first and second letters, and IELHC’s May 4,
2009 California Lawsuit, constituted a claim to assets of IEL’s
estate made by IELHC. The Liquidator denied the claim and
concluded that “the entire IELHC Claim fails because IELHC has
not established that it is either the shareholder of [IEL], or
that it was wrongfully deprived of its ownership of shares of
[IEL].” The Liquidator reasoned that IELHC’s claim to all shares
of IEL stock was without merit because IELHC voluntarily
22
HRS § 431:15-329(a) provided then, as it does now:
(a) When a claim is denied in whole or in part by the
liquidator, written notice of the determination shall be
given to the claimant or the claimant’s attorney by first
class mail at the address shown in the proof of claim.
Within sixty days from the mailing of the notice, the
claimant may file any objections with the liquidator. If no
such filing is made, the claimant may not further object to
the determination.
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surrendered and forfeited its shares of IEL stock as a condition
of the 1996 settlement agreement. Furthermore, IEL’s purported
Class 9 shareholder claim was subordinate to all higher priority
claims, there were insufficient assets available for distribution
to Class 9 shareholders, and IELHC’s claim was untimely inasmuch
as the August 23, 1995 order approving the Commissioner’s
liquidation plan established December 1, 1995 as the claims bar
date.
On January 15, 2010, IELHC timely filed objections to
the Liquidator’s determination. IELHC argued that the Liquidator
had no personal jurisdiction over IELHC, the Liquidator had no
subject matter jurisdiction “over what the Liquidator purports to
be a ‘claim’ asserted by [IELHC],” and the Liquidator was barred
from making the purported determination. Specifically, IELHC
argued that: (1) the Liquidator was disqualified from making the
determination because the Liquidator -- as a defendant in IELHC’s
California Lawsuit -- had a personal interest in the matter that
prevented him from providing disinterested, objective advice; (2)
IELHC did not submit a claim or proof of claim to the Liquidator;
(3) the California Lawsuit’s assertion of claims against the
Liquidator was not an assertion of claims against the estate of
IEL; (4) IELHC’s “claim,” as defined by the Liquidator, is not
the type of claim considered by HRS § 431:115-329; and (5) the
Liquidator had “no jurisdiction, right, or authority unilaterally
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to assume jurisdiction over the California Action or any of the
claims or causes of action alleged therein.” IELHC demanded that
the Liquidator immediately withdraw the November 20, 2009
determination.”
The Liquidator rejected IELHC’s arguments and declined
to withdraw the November 20, 2009 determination. Pursuant to HRS
§ 431:15-329(b),23 on May 11, 2010, the Liquidator filed a Motion
for an Order Confirming the Liquidator’s Determination of a
Disputed Claim in the circuit court liquidation case. He argued
that the denial of IELHC’s claim should be confirmed for the
reasons cited in the November 20, 2009 determination and that the
“undisputed record” of the liquidation proceedings supported a
denial of IELHC’s claim.
HLDIGA filed a Joinder in Liquidator’s Motion for an
Order Confirming the Liquidator’s Determination of a Disputed
Claim on May 21, 2010.
IELHC opposed the Liquidator’s motion and moved to
dismiss it. IELHC argued that: (1) IELHC never filed a claim
23
HRS § 431:15-329(b) provided then, as it does now:
(b) Whenever objections are filed with the liquidator and
the liquidator does not alter the denial of the claim as a
result of the objections, the liquidator shall ask the court
for a hearing as soon as practicable and give notice of the
hearing by first class mail to the claimant or the
claimant’s attorney and to any other persons directly
affected, not less than ten nor more than thirty days before
the date of the hearing. The matter may be heard by the
court or by a court appointed referee who shall submit
findings of fact along with such referee’s recommendations.
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with the Liquidator and therefore the circuit court lacked
subject matter jurisdiction over the Liquidator’s motion; (2)
IELHC had a constitutional right to a jury trial to determine the
disputed ownership of the IEL stock; (3) the Liquidator had no
right or authority to determine the ownership of IEL’s stock
because it was not a part of IEL’s estate; (4) the Liquidator had
a conflict of interest in “fabricating” and adjudicating IELHC’s
“claim” while being a defendant accused of misconduct in IELHC’s
California Lawsuit; (5) the Liquidator’s procedures did not
afford IELHC administrative or procedural due process; (6) the
circuit court lacked personal jurisdiction over IELHC; (7)
because the California Lawsuit involved many of the same issues
between the same parties, abatement of the Liquidator’s motion
was necessary; and (8) the Liquidator’s determinations regarding
the ownership of IEL’s stock constituted an attempt to enforce a
settlement agreement, which would necessitate filing a separate
action. IELHC also opposed HLDIGA’s joinder, stating that HLDIGA
has no standing under HRS § 431:15-329.24
The circuit court25 granted the Liquidator’s motion and
denied IELHC’s motion to dismiss by Findings of Fact, Conclusions
24
In its Reply Brief to HLDIGA’s Answering Brief, IELHC again claims
that HLDIGA does not have standing and should not have been granted intervenor
status. However, this argument was waived on appeal because IELHC did not
raise it in its opening brief. See Hawai#i Rules of Appellate Procedure
(HRAP) Rule 28(b)(7) (2010) (“Points not argued may be deemed waived.”).
25
The Honorable R. Mark Browning presided.
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of Law and Order entered on October 6, 2010. The circuit court
concluded, in relevant part:
Conclusions of Law
. . . .
3. In its letters to the Liquidator dated April 23,
2008 and July 2, 2008 and its First Amended Complaint filed
in the California Lawsuit, IELHC asserts that it is entitled
to all IEL stock and all residual assets in IEL’s
estate. . . . These assertions constitute claims against the
IEL estate within the meaning if [sic] ISRLA.
4. A party cannot avoid the substantive
requirements of a law by failing to follow the procedural
requirements of the law. A demand to a liquidator for
payment of money or transfer of property out of the
insolvent insurer’s estate, by one claiming a right to such
funds or property, is a “claim” within the meaning of ISRLA,
regardless of the form in which it is asserted.
5. Resolution of who owns and has rights to IEL’s
stock determines a potential right to distribution from the
estate of IEL. . . .
6. The Court concludes that IELHC has asserted a
claim against the estate of IEL under ISRLA, which claim the
Liquidator has denied.
7. ISRLA requires the Court to determine disputed
claims . . . [pursuant to] H.R.S. § 431:15-329.
8. To permit parties to assert claims against the
IEL estate in various forms (including as lawsuits
elsewhere) and not recognize those claims as claims against
the IEL estate under ISRLA would undermine the purpose of
ISRLA to protect “the interests of insureds, claimants,
creditors, and the public generally . . . through . . .
[e]nhanced efficiency and economy of liquidation [] to
minimize legal uncertainty and litigation; [and] [e]quitable
apportionment of any unavoidable loss.” H.R.S. § 431:15-
101(d). . . .
9. This Court has the duty to resolve IELHC’s claim
pursuant to H.R.S. § 431:15-329(b), and has subject matter
jurisdiction over the Liquidator’s Motion for an Order
Confirming the Liquidator’s Determination of a Disputed
Claim Pursuant to H.R.S. Section 431:15-329(b).
. . . .
13. IELHC has been and remains a party to this
proceeding by virtue of its intervention and extensive
participation in the proceedings over many years. Further,
this Court concludes that it has personal jurisdiction over
IELHC and that service of process on IELHC was sufficient.
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. . . .
18. IELHC is not the legal or equitable shareholder
of IEL. IELHC has presented no evidence to demonstrate an
entitlement to the IEL stock or to demonstrate that it was
wrongfully deprived of its IEL shares. . . . The [1996]
Stock Subscription Agreement was lawful, proper and approved
by this Court nearly 14 years ago after a hearing at which
IELHC’s counsel appeared.
19. IELHC voluntarily relinquished its shares as
part of the Settlement Agreement approved by this Court.
The record affirmatively demonstrates that IELHC has no
current interest in IEL’s estate and is not entitled to a
distribution from the IEL estate as a shareholder of IEL.
IELHC does not have any current legal or equitable interest
in IEL’s stock and IELHC was not wrongfully deprived of its
shares.
. . . .
30. Insurance liquidations are considered equitable
proceedings. . . . Accordingly, ISRLA does not provide for
jury trials of creditor claims. The absence of provisions
for jury trials in such proceedings does not offend the
Constitution.
. . . .
36. This Court concludes that the Liquidator does
not have a conflict of interest and that there is no basis
which would disqualify the Liquidator from making a
determination on the IELHC claim or moving for confirmation
of the denial of the IELHC claim. . . .
37. . . . [T]his Court has exclusive jurisdiction
over claims against IEL’s estate and is obligated to resolve
them. As a result this Court may not properly abate the
Liquidator’s Motion.
The circuit court also concluded that IELHC’s claim was time
barred:
IELHC’s contention that it was not aware of its claim until
March of 2008 is contrary to the record. . . . [T]he record
shows that IELHC knew long ago it no longer was a
shareholder in IEL, that HLDIGA was the beneficiary of the
IEL stock, and that HLDIGA was receiving distributions from
the IEL estate. In addition, IELHC has not established that
any statutory authority permits the late filing of its
claim.
On November 4, 2010, IELHC timely appealed the circuit
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court’s order to the ICA.26
After the briefs were filed, on November 16, 2011,
IELHC filed an application for transfer to this court. The
Liquidator and HLDIGA filed oppositions to the application on
November 22, 2011. The application for transfer was granted on
December 16, 2011.
III. STANDARDS OF REVIEW
A. Conclusions of Law
“We review the [circuit] court’s conclusions of law de
novo under the right/wrong standard.” Metcalf v. Voluntary Emps.
Benefit Ass’n of Haw., 99 Hawai#i 53, 57, 52 P.3d 823, 827
(2002).
B. Jurisdiction
The existence of jurisdiction is a question of law,
reviewed de novo. Dupree v. Hiraga, 121 Hawai#i 297, 312, 219
P.3d 1084, 1099 (2009).
C. Statutory Interpretation
Statutory interpretation is reviewable de novo. Haw.
26
The October 6, 2010 order was entered in the post-judgment
proceeding in S.P. No. 94-0337 to determine IELHC’s disputed claim to assets
of the IEL estate. The order ended the circuit court proceeding to determine
the disputed claim and is a final order of the circuit court appealable under
HRS § 641-1(a) (Supp. 2012). See HRS § 641-1(a) (“Appeals shall be allowed in
civil matters from all final judgments, orders, or decrees of circuit and
district courts and the land court to the intermediate appellate
court . . . .”); see also Familian Nw. Inc. v. Cent. Pac. Boiler & Piping,
Ltd., 68 Haw. 368, 370, 714 P.2d 936, 937 (1986) (holding an order entered in
a post-judgment proceeding to be an appealable final order if it ends the
post-judgment proceeding).
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State Teachers Ass’n v. Abercrombie, 126 Hawai#i 318, 320, 271
P.3d 613, 615 (2012). We observe the following principles when
interpreting statutes:
“First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain and
unambiguous, our sole duty is to give effect to its plain
and obvious meaning. Third, implicit in the task of
statutory construction is our foremost obligation to
ascertain and give effect to the intention of the
legislature, which is to be obtained primarily from the
language contained in the statute itself. Fourth, when
there is doubt, doubleness of meaning, or indistinctiveness
or uncertainty of an expression used in a statute, an
ambiguity exists. And fifth, in construing an ambiguous
statute, the meaning of the ambiguous words may be sought by
examining the context, with which the ambiguous words,
phrases, and sentences may be compared, in order to
ascertain their true meaning.”
Id. (quoting Haw. Gov’t Emps. Ass’n v. Lingle, 124 Hawai#i 197,
202, 239 P.3d 1, 6 (2010)).
IV. ANALYSIS
A. Standard of Review for Liquidation Proceedings
Before reaching the issues raised on appeal, we must
first determine what standard of review to afford the decisions
of a circuit court during liquidation proceedings (the
liquidation court). This is a question of first impression in
Hawai#i.
IELHC argues that the liquidation court’s “summary
adjudication procedure” was akin to the procedure involved in an
order granting or denying summary judgment. Therefore, it
reasons, we should review the circuit court’s decision de novo.
The Liquidator argues that the liquidation court’s
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review is similar to the circuit court’s review of an equitable
receivership. The circuit court’s decisions regarding an
equitable receivership are reviewed under the abuse of discretion
standard. Therefore, it reasons, we should review the
liquidation court’s decision for abuse of discretion. It
emphasizes that the liquidation court was not reviewing a summary
judgment motion but was instead reviewing a liquidator’s motion
pursuant to HRS § 431:15-329.
There is precedent from other states recommending
treating a liquidation court as a court of equity, even though
the court’s authority derives from statute rather than equitable
principles. Oklahoma courts consider insurance liquidation
proceedings to be of “equitable cognizance.” State ex rel.
Crawford v. Indemnity Underwriters Ins. Co., 943 P.2d 1102, 1103
(Okla. Civ. App. 1997). Similarly, the Nebraska Supreme Court
held that liquidation proceedings are equitable proceedings. See
State ex rel. Wagner v. Amwest Sur. Ins. Co., 738 N.W.2d 813,
816-17 (Neb. 2007). That court stated that whether an action is
in equity is determined by “the essential character of [the
action] and the remedy or relief it seeks.” Id. It reasoned
that the Nebraska liquidation act’s “stated purpose is the
protection of the interests of the insureds, claimants,
creditors, and the public through various means, including
‘equitable apportionment of any unavoidable loss’” and
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“‘equitable allocation of disbursements’” Id. at 817
(alterations omitted) (quoting Neb. Rev. Stat. §§ 44-4801(4) and
44-4834(c) (Reissue 1998)). Because of the central role of
equity in liquidation determinations, the Nebraska Supreme Court
concluded that liquidation proceedings were equitable.27 Id. at
816-17.
Several other states review the decisions of a
liquidation court under the abuse of discretion standard, or a
similarly deferential standard. See In re Exec. Life Ins. Co. v.
Aurora Nat’l Life Assurance Co., 38 Cal. Rptr. 2d 453, 460 (Cal.
Ct. App. 1995) (“We . . . test the action of the trial court [in
liquidation proceedings] by the abuse of discretion standard.”);
In re Frontier Ins. Co., 945 N.Y.S.2d 866, 876 (N.Y. Sup. Ct.
2012) (“[T]he Court recognizes the deferential standard of review
applicable to the Rehabilitator’s actions.”); State v. Interstate
Cas. Ins. Co., 464 S.E.2d 73, 77 (N.C. Ct. App. 1995) (“Because
of the discretionary nature of [North Carolina liquidation law],
we believe the trial court's decision should not be disturbed
absent an abuse of discretion.”). In California, it is well
established that the decisions of liquidation courts are afforded
27
In Nebraska, although liquidation proceedings are treated as
equitable proceedings, the decisions of the liquidation court are reviewed de
novo because that is the standard of review Nebraska’s appellate courts apply
to courts of equity. Wagner, 738 N.W.2d. at 817. However, in Oklahoma, the
liquidation court’s judgment will not be disturbed “‘unless against the clear
weight of the evidence or contrary to law or established principles of
equity.’” Crawford, 943 P.2d at 1103 (quoting Wetsel v. Johnson, 468 P.2d
479, 481 (Okla. 1970)).
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discretionary review:
“Because the insurer is in liquidation, the scope of
our review of determinations of both the superior court and
the liquidation trustees in the resolution of claims by
insureds against an insolvent carrier is
circumscribed. . . . Our high court has long since observed
that such conservation proceedings arise under the broad
police powers of the state to insure the reorganization or
orderly liquidation of insolvent insurers and the protection
of their policyholders and the public.”
Garmendi v. Golden Eagle Ins. Co., 10 Cal. Rptr. 3d 724, 733
(Cal. Ct. App. 2004) (quoting Low v. Golden Eagle Ins. Co., 128
Cal. Rptr. 2d 423, 430 (Cal. Ct. App. 2002)).
Based on our precedent, and that of other states, we
will review the decisions of a liquidation court under the same
standard as that of equitable receiverships –- abuse of
discretion. In a receivership, a trustee-receiver is appointed
to protect property during foreclosure or litigation. Haw.
Ventures, 114 Hawai#i at 457-58, 164 P.3d at 715-16. A circuit
court’s decisions regarding equitable receiverships are reviewed
under the abuse of discretion standard because of the court’s
broad discretionary power to appoint receivers and craft remedies
to preserve equity. Id. at 456, 164 P.3d at 714.
Although liquidation courts derive their authority from
statute, they have similarly equitable goals and the discretion
to craft equitable remedies. HRS § 431:15-101 provides that the
purpose of Hawai#i‘s insurance liquidation law is “the protection
of the interests of the insureds, claimants, creditors, and the
public generally” through, in part, “equitable apportionment of
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any unavoidable loss.” The Liquidator has the authority to
“compound, compromise, or in any other manner negotiate the
amount for which claims will be recommended to the court, except
where the liquidator is required by law to accept claims.” HRS §
431:15-333 (2005). Furthermore, the Liquidator’s distributions
must “assure the proper recognition of priorities and a
reasonable balance between the expeditious completion of the
liquidation and the protection of unliquidated and undetermined
claims.” HRS § 431:15-334 (2005). These statutes demonstrate
the broad discretionary powers of the Liquidator and the
liquidation court to effect the equitable distribution of assets
and apportionment of losses. Therefore, as with equitable
receiverships, liquidation courts should be reviewed under the
abuse of discretion standard. However, a liquidation court’s
decisions regarding questions of law must be reviewed de novo.
See Voluntary Emps. Benefit Ass’n of Haw., 99 Hawai#i at 57, 52
P.3d at 827.
B. IELHC’s Claim under HRS § 431:15-326
As an initial question, we must resolve whether the
circuit court abused its discretion in concluding that IELHC
submitted a proof of claim to the Liquidator. Hawai#i courts
have not previously interpreted this proof of claim statute.
Furthermore, this case is particularly unusual because IELHC
attests that its communications did not constitute a claim.
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Courts in other states have occasionally considered whether a
purported claim met the state’s statutory proof of claim
requirements, but in all of those cases, the purported claimants
argued that their communications did constitute a claim.
1. IELHC’s, the Liquidator’s, and HLDIGA’s arguments
IELHC argues that its two letters to the Liquidator and
the California Lawsuit do not constitute a claim. It defines a
claim as something “(1) filed by a creditor or other claimant (2)
with the liquidator under the Hawai#i insolvency statutes (3)
against the estate of the insolvent insurer.” IELHC
characterizes its first letter as “a pre-litigation demand
letter”: a demand for stock -- which is not an asset in IEL’s
estate -- and notice that IELHC would seek damages for fraud and
other torts from the Liquidator and others. IELHC states that
its second letter “was sent in the context of a mediation to
resolve disputes which include ownership of IEL’s stock.”
Finally, IELHC emphasizes that its First Amended Complaint in the
California Lawsuit was not filed “against the IEL estate.”
Therefore, IELHC concludes that its communications cannot be
characterized as a claim because it never purported to be a
creditor and it never sought assets from IEL’s estate.
The Liquidator argues that IELHC’s letters and the
California Lawsuit constitute a claim, filed with the Liquidator,
against IEL’s estate. The Liquidator quotes language from
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IELHC’s first letter that it characterizes as the claim:
“[T]he claims of the policyholders, claimants,
creditors, and others senior to [IELHC] in the statutory
priority of distribution under section 431:15-332 of the
Hawai#i Revised Statutes have apparently been fully paid,
liquidated or otherwise protected. As a matter of equity
and public policy, [IELHC] as a shareholder, or legal or
equitable owner, of the stock of IEL should receive
distribution of the remaining surplus of the estate. . . .
. . . .
[I]t is respectfully demanded that the Honorable J.P.
Schmidt, Insurance Commissioner of the State of Hawai#i,
deliver to [IELHC] all authorized, issued, and outstanding
shares of stock of IEL, and any certificates representing
said shares.”
The Liquidator characterizes this as a claim to IEL’s stock and
“to all residual assets in IEL’s estate” made pursuant to HRS §
431:15-332, specifying the order of distribution of claims.
The Liquidator argues that IELHC’s second letter and
the California Lawsuit provided additional information regarding
IELHC’s claim. In the second letter, IELHC referred to “IELHC’s
claims.” In the First Amended Complaint in the California
Lawsuit, IELHC specifically referred to its first letter as a
“claim to distribution of the monies and assets remaining in the
estate of IEL.” The Liquidator argues that this statement is a
judicial admission that bars IELHC from now denying that the
first letter constituted a claim.
Finally, the Liquidator cites Checker Motors Corp. v.
Executive Life Insurance Co., 1992 WL 29806 (Del. Ch. Feb. 13,
1992), aff’d as modified by, 614 A.2d 530 (Del. 1992), for the
principle that a lawsuit can constitute a claim. In Checker
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Motors, the court held that a claim for declaratory judgment
regarding the respective rights of the claimant and the insolvent
insurer, brought outside the liquidation proceedings and in a
state where no ancillary receiver had been appointed, was a
“claim” under the ordinary definition of the word and under the
Uniform Insurers Liquidation Act. Id. at *4. The court reasoned
that to hold otherwise would contravene the Act’s policy “of
avoiding the dissipation of an insurer’s assets by reason of its
having to defend disparate litigations throughout the country.”
Id.
HLDIGA supports the Liquidator’s interpretation of
IELHC’s California Lawsuit as a claim. Specifically, it argues
that it would undermine the purpose of the ISRLA to permit
parties to bring claims against IEL’s estate in lawsuits in other
states and not recognize those lawsuits as claims against the
estate under ISRLA.
2. Statutory interpretation
Hawai#i’s proof of claim statute, codified at HRS §
431:15-326 establishes the elements of a proof of claim. It
provides, in part:
(a) Proof of claim shall consist of a statement signed by
the claimant that includes all of the following that are
applicable:
(1) The particulars of the claim including the
consideration given for it;
(2) The identity and amount of the security on the
claim;
(3) The payments made on the debt, if any;
(4) That the sum claimed is justly owing and that
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there is no setoff, counterclaim, or defense to
the claim;
(5) Any right of priority of payment or other
specific right asserted by the claimant;
(6) A copy of the written instrument which is the
foundation of the claim; and
(7) The name and address of the claimant and the
attorney who represents the claimant, if any.
(b) No claim need by considered or allowed if it does not
contain all the information in subsection (a) which may be
applicable. The liquidator may require that a prescribed
form be used, and may require that other information and
documents be included.
(c) At any time the liquidator may request the claimant to
present information or evidence supplementary to that
required under subsection (a) and may take testimony under
oath, require production of affidavits or depositions, or
otherwise obtain additional information or evidence.
HRS § 431:15-326(a)-(c).28
In construing this statute we must “give effect to the
intention of the legislature, which is to be obtained primarily
from the language contained in the statute itself.” Gray v.
Admin. Dir. of the Court, State of Haw., 84 Hawai#i 138, 148, 931
P.2d 580, 590 (1997) (quoting State v. Toyomura, 80 Hawai#i 8,
18, 904 P.2d 893, 903 (1995)). Statutory language must be read
“‘in the context of the entire statute’” and construed “‘in a
manner consistent with its purpose.’” Id. (quoting Toyomura, 80
Hawai#i at 18-19, 904 P.2d at 903-04).
As discussed above, the purpose of ISRLA is to protect
“the interests of insureds, claimants, creditors, and the public
28
Hawaii’s insurance code is based upon the National Association of
Insurance Commissioners (“NAC”) Model Act. See 2 Hawai#i Insurance
Commissioner, Revised and Consolidated Insurance Laws of the State of Hawai#i
(1986). HRS § 431:15-326 was adopted from NAC Insurance Code, section 36, and
Utah Code Ann. § 31A-27-329. Id. The Hawai#i legislature adopted this
section without any modifications to the model code aside from changing the
word “claimants” from plural to singular in HRS § 431:15-326(a)(5).
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generally.” HRS § 431:15-101. Under ISRLA, the liquidator of an
insolvent insurer has broad powers, including the power to:
“[e]mploy employees and agents, legal counsel, actuaries,
accountants, appraisers, consultants and such other personnel as
the liquidator deems necessary”; “[p]ay reasonable compensation
to persons appointed”; “[h]old hearings”; “[c]ollect all debts
and moneys due and claims belonging to the insurer wherever
located”; “[c]onduct public and private sales of the property of
the insurer”; “[b]orrow money on the security of the insurer’s
assets”; “[p]rosecute any action that may exist on behalf of the
creditors, members, policyholders, or shareholders of the
insurer”; “[e]xercise and enforce all the rights, remedies, and
powers of any creditor shareholder, policyholder, or member”; and
“to do such other acts not herein specifically enumerated, or
otherwise provided for, as may be necessary or appropriate for
the accomplishment of or in aid of the purpose of liquidation.”
HRS § 431:15-310 (2005).
The liquidator’s powers in accepting and adjudicating
claims are similarly broad. Although ISRLA states that “[p]roof
of all claims shall be filed with the liquidator in the form
required by section 431:15-326 on or before the last day for
filing,” it also provides that “the liquidator may consider any
claim filed late.” HRS § 431:15-325. The liquidator has the
authority to “compound, compromise, or in any other manner
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negotiate the amount for which claims will be recommended to the
court.” HRS § 431:15-333. And, the liquidator’s distributions
should “assure the proper recognition of priorities and a
reasonable balance between the expeditious completion of the
liquidation and the protection of unliquidated and undetermined
claims.” HRS § 431:15-334.
We have previously interpreted ISRLA to give the
Commissioner discretionary power when acting as Liquidator. We
reasoned that “[b]ased upon the statutory scheme and the
underlying purposes of the ISRLA, the legislature intended to
grant the Commissioner the broad powers to facilitate an orderly
liquidation of an insolvent insurance company and to ensure an
equitable apportionment between creditors of any losses that may
result.” Four Star Ins. Agency, Inc. v. Hawaiian Elec. Indus.,
Inc., 89 Hawai#i 427, 433, 974 P.2d 1017, 1023 (1999).
Reading the language of HRS § 431:15-326 as a whole and
in the context of other provisions of ISRLA, it seems that the
liquidator has discretionary power to accept proof of claims that
do not contain all of the elements enumerated in HRS § 431:15-
326(a). HRS § 431:15-326(a) states the elements that the proof
of claim “shall” contain. We have expressed our doubt and
uncertainty as to the meaning of “shall.” See Gray, 84 Hawai#i
at 150, 931 P.2d at 592. We have called “shall” a “‘CHAMELEON-
HUED WORD,’” and commented that “‘courts in virtually every
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English-speaking jurisdiction have held –- by necessity –- that
shall means may in some texts, and vice versa.’” Gray, 84
Hawai#i at 150, 931 P.2d at 592 (quoting B. Garner, A Dictionary
of Modern Legal Usage 939-40 (2d ed. 1995)). “Shall” is also
commonly construed to mean “should.” See B. Garner, The Redbook:
A Manual on Legal Style 454 (2d ed. 2002) (“Although every
drafter seems to have heard that shall is a mandatory
word . . . courts have often held that it means ‘should.’”).
The meaning of “shall” in HRS § 431:15-326(a) is
clarified by reading the statute in context with HRS § 431:15-
326(b). HRS § 431:15-326(b) provides that the liquidator does
not “need” to consider a claim which does not contain all the
information in subsection (a). This suggests that the liquidator
may consider a claim that does not contain all of the information
in subsection (a).
This interpretation of the liquidator’s broad
discretionary powers accords with the interpretations of other
courts. We have previously stated that ISRLA, patterned after
NAC’s Uniform Insurers Liquidation Act (UILA), and specifically
ISRLA’s liquidation provisions, is similar to the liquidation
provisions in New York’s insurance laws. Four Star Ins. Agency,
Inc., 89 Hawai#i at 433, 974 P.2d at 1023. We concluded that
“because Hawai#i appellate courts have not yet addressed the
scope of the insurance commissioner’s power in
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rehabilitating/liquidating an insolvent insurer, New York’s
interpretation of their insurance law’s provisions governing
liquidation is useful in construing HRS ch. 431:15.” Id.
In In re the Liquidation of Union Indemnity Insurance
Company of New York, 631 N.Y.S.2d 39 (N.Y. App. Div. 1995), the
New York appellate court affirmed the liquidation court’s holding
that a verified complaint “constitutes substantial compliance
with the requirements of [New York’s proof of claim statute] and
that the claim should be deemed timely filed.” 631 N.Y.S.2d at
39. The court reasoned that although the verified complaint was
not a proof of claim under the statute, because it was the
“substantial equivalent of a proof of claim,” the liquidator must
adjudicate the claim. Id. at 39-40.
Hawaii’s and New York’s proof of claim statutes are
very similar. New York’s proof of claim statute provides:
(1) A proof of claim shall consist of a written statement
subscribed and affirmed by the claimant as true under the
penalties of perjury, setting forth the claim, the
consideration therefor, any securities held therefor, any
payments made thereon, and that the sum claimed is justly
owing from the insurer to the claimant.
(2)If a claim is founded upon an instrument in writing, such
instrument, unless lost or destroyed, shall be filed with
the proof of claim. . . .
N.Y. Insurance Law § 7433(a) (McKinney’s 2012).29 Both statutes
use the vague term “shall” when listing the claim requirements.
Compare HRS § 431:15-326 with N.Y. Insurance Law § 7433(a). New
29
This section of New York’s Insurance Law has not been amended
since the In re the Liquidation of Union Indemnity Insurance Company of New
York decision in 1995.
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York and Hawai#i also have the same proof of claim requirements
except that Hawai#i additionally requires the claimant to
include: (1) any right of priority of payment and (2) the name
and address of the claimant’s attorney, if any. Id. And, New
York’s statute, like Hawai#i’s, does not specifically grant the
liquidator power to adjudicate claims which do not comply with
the enumerated proof of claim requirements. Id. The only
significant difference between the statutes is that under Hawai#i
law, the liquidator is not required to consider claims which do
not contain all of the statutory proof of claim requirements.
Id. This difference should in no way limit the liquidator’s
discretionary power to consider claims which are the “substantial
equivalent” of a proof of claim.
Two states have concluded that a claim is not entitled
to adjudication when it does not fully comply with the state’s
statutory proof of claim requirements. However, these cases are
easily distinguishable from the present case.
In State ex rel. Clark v. Blue Cross Blue Shield of
West Virginia, Inc., 466 S.E.2d 388 (W. Va. 1995), the Supreme
Court of Appeals of West Virginia held that where the claimant
notified the receiver of its claim by letter, instead of filing a
proof of claim on the prescribed form, the claim was not
“entitled to filing or allowance, and no action may be maintained
with regard to the claim.” 466 S.E.2d at 394. In reaching its
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holding, the West Virginia court relied upon provisions in West
Virginia’s insurance liquidation law that stated:
‘Unless such claim is filed in the manner and within the
time provided in [the proof of claim statute], it shall not
be entitled to filing or allowance, and no action may be
maintained thereon.’ W. Va. Code § 33-24-36(f) . . . .
Further, ‘no claim by a policyholder or other creditor shall
be permitted to circumvent the priority classes through the
use of equitable remedies.’ W. Va. Code § 33-24-27.
Id. at 392 (emphasis and alterations omitted). The court also
reasoned that it had previously followed a doctrine of strict
compliance concerning the provisions of the insurance liquidation
laws and that a substantial compliance standard was inapplicable.
Id. at 393.
The California Court of Appeals has applied a similarly
strict interpretation to its proof of claim statute. In
Garamendi v. Mission Insurance Co., 2005 WL 1549326 (Cal. Ct.
App. July 5, 2005), the court held that a letter from the
claimant, notifying the Commissioner of an estimated $649,000,000
in claims, was not properly filed when it was not filed on the
prescribed proof of claim form and when claimant demonstrated
that it had access to the proof of claim form by later filing an
unsigned and partially blank form for a portion of its claim.
2005 WL 1549326, at *1.
The California court rejected the claimant’s arguments
that the letter substantially complied with the claim-filing
requirements. Id. at *5-6. The court reasoned that the
commissioner is bound by the liquidation laws’ statutory
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procedures. Id. at *6. California’s liquidation law, at the
relevant time, “‘require[d] claimants to file their claims with
the commissioner, together with proper proofs thereof, within six
months after the date of first publication of . . . notice.’”
Id. (emphasis omitted) (quoting Cal. Ins. Code § 1021(a)). The
law also provided that “‘[a] claim must set forth, under oath, on
the form prescribed by the commissioner’” all of the data and
supporting documents required by the commissioner. Id. (emphasis
omitted) (quoting Cal. Ins. Code § 1023). And finally, the law
provided that “‘[u]nless such claim is filed in the manner and
within the time provided in section 1021, it shall not be
entitled to filing or allowance, and no action may be maintained
thereon.’” Id. (quoting Cal. Ins. Code § 1024). The court
concluded that, based on the unambiguous statutory language and
the insurance insolvency legislation’s purpose of providing clear
and uniform procedures, the commissioner was not required to
accept the claimant’s letter as a claim. Id. at *6-7.
The West Virginia and California cases are
distinguishable from the present case based on the relevant laws
and facts. In West Virginia, the court favored a narrow
interpretation of its insurance liquidation law, which stated
that a claim was not entitled to filing or allowance if it was
not filed in the manner prescribed by statute. See State ex rel.
Clark, 466 S.E.2d at 394. Similarly, California’s insurance
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liquidation law, on its face, was stricter than Hawai#i’s in
stating that, to be entitled to filing or allowance, a proof of
claim “must” contain certain elements. See Garamendi, 2005 WL
1549326, at *6. Most significantly, these cases differ from the
present case because in neither case did the court conclude that
the liquidator was barred from adjudicating the claim. Rather,
both courts held only that the liquidator had not erred in
refusing to accept the claimant’s letter as a timely filed proof
of claim.
Based on the purpose and language of ISRLA, as well as
our past reliance New York’s interpretations of its similar
insurance law, we adopt a broad interpretation of Hawai#i’s proof
of claim statute. In accordance with the liquidator’s
discretionary powers, the liquidator may accept a claim which is
in substantial compliance with the proof of claim elements of HRS
§ 431:15-326.30
3. Analysis of IELHC’s letters and the California Lawsuit
Under this discretionary standard, IELHC’s letters and
its California Lawsuit sufficiently asserted a claim for the
Liquidator to administer it as such. IELHC’s first letter to the
Liquidator substantially complied with HRS § 431:15-326(a).
IELHC’s second letter provided additional information but did not
30
This case does not raise, and therefore we need not consider, the
issue of whether the liquidator is required to accept a claim that does not
conform with HRS § 431:15-326.
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state a claim against the estate. Finally, the California
Lawsuit reiterated IELHC’s claim from its first letter and may
have been sufficient to state a claim independently.
IELHC’s first letter to the Liquidator satisfied the
majority of the applicable proof of claim elements enumerated in
HRS § 431:15-326. The letter provided the “particulars of the
claim including the consideration given for it,” HRS § 431:15-
326, by stating that IELHC sought “distribution of the remaining
surplus of the estate”31 due to its status as IEL’s sole
shareholder.32 The letter also specified IELHC’s priority of
payment by specifying that IELHC’s claim was based upon its
status as a shareholder. Because there was no security on the
31
The Dissent argues that we are giving meaning to the term “estate”
that the first letter did not intend. Dissent at 19-20. However, we agree
with the Dissent that the term “estate” refers to “the total assets of the
insurer” and that both the first letter and the ISRLA use the term in this
way. See Dissent at 19. Pursuant to HRS § 431:15-307, possession and title
of the insurer’s assets, or estate, are vested in the liquidator for the
purpose of administration and settlement of claims. Therefore, a conclusion
that IELHC’s demand for what was remaining in the estate, which was in the
possession of the Liquidator for the purpose of administering claims, was a
claim is consistent with the purpose of ISRLA.
32
Thus, the Dissent’s assertion that “the only demand that can be
discerned from the First Letter is for the remaining IEL shares[,]” Dissent at
11, is unavailing because the letter also clearly refers to assets within the
estate. It is accepted that IEL stock was not part of IEL’s estate because it
was not an asset of IEL, and so the contention that IELHC asserted rights only
to something outside of the estate is inconsistent with IELHC’s argument in
the letter that it “should receive distribution of the remaining surplus of
the estate.” IELHC also begins its letter by arguing that the Liquidator’s
financial statement filed on February 27, 2008, “materially misstates and
misrepresents the financial condition of IEL’s estate in liquidation.” IELHC
challenged the valuation of the estate, not the stock. Once again, this
reference to the estate and the allegation of misrepresentation reveal a clear
intent to assert rights to assets within the estate. Therefore, a reading of
the letter such that it is understood to assert rights to both assets within
the estate and to IEL stock appears most accurate and persuasive. As
discussed infra, IELHC’s California Lawsuit also supports such a reading.
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claim and there were no payments on the debt, those proof of
claim elements are inapplicable.33 See HRS § 431:15-326(a). The
letter also provided the name and address of the attorney through
which the claimant could be contacted. The letter did not comply
with HRS § 431:15-326 in that it was not signed by the claimant,
though it was signed by the claimant’s attorney, and it did not
state “that the sum claimed is justly owing and that there is no
setoff, counterclaim, or defense to the claim.” It also did not
include a copy of any written instruments which were the
foundation of the claim, and it did not provide the address of
the claimant. Though these omissions are not insignificant, they
are not of a nature to deprive the Liquidator of an understanding
of the critical elements of the claim. The Liquidator was able
to identify who submitted the claim, the amount of the claim, and
the grounds of the claim. Therefore, the letter of April 23,
2008 sufficiently complied with the proof of claim requirements
to permit the Liquidator to adjudicate IELHC’s claim.
IELHC’s second letter supplemented its first letter’s
arguments in support of IELHC’s ownership of IEL’s stock and
requested mediation on that issue. IELHC’s assertion of title in
33
The Dissent asserts that these elements are inapplicable because
there is a “fundamental difference between stock ownership and a debt.”
Dissent at 15. The Dissent seems to imply that shareholders and owners, by
definition, cannot assert claims against an estate under ISRLA. However, such
an interpretation would run contrary to HRS § 431:15-332, which refers to
“[t]he claims of shareholders or other owners” as Class 9 claims, thus,
clearly envisioning the possibility of claims asserted by shareholders.
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IEL’s stock was not a claim against IEL’s estate because IEL’s
stock was not a part of its estate. While the second letter
provided additional grounds for IELHC’s contention that its
shares were never forfeited, it contained no specific claim to
the assets of IEL’s estate. Therefore, it was insufficient to
assert a claim independently.
IELHC’s California Lawsuit, and specifically its First
Amended Complaint, demonstrated that IELHC intended for its first
letter to assert a claim against IEL’s estate. In its First
Amended Complaint, IELHC states that its first letter constituted
a claim which the Liquidator failed to adjudicate. In a section
entitled “DEMAND FOR STOCK AND DISTRIBUTION,” IELHC states:
Promptly upon discovery of the relevant facts and
circumstances giving rise to this action, by letter sent on
April 23, 2008 Plaintiff served a demand upon
[Commissioner/Liquidator] Schmidt, through their respective
attorneys, for Schmidt to deliver to Plaintiff all of the
authorized, issued, and outstanding shares of stock of
IEL . . . and claim to distribution of the monies and assets
remaining in the estate of IEL.
. . . [Commissioner/Liquidator] Schmidt has failed and
refused to deliver to Plaintiff all of the authorized
issued, and outstanding shares of stock of IEL . . . and
claim to distribution of the monies and assets remaining in
the estate of IEL.
. . . Defendants have no legitimate or compelling
state interest for taking or depriving Plaintiff of the its
[sic] right, title, and interest in the stock, and shares,
certificates, and value of such stock of IEL.
The First Amended Complaint in the California Lawsuit
may also have been sufficient, independent of IELHC’s letters, to
assert a claim against IEL’s estate. The complaint requested a
declaratory judgment on IELHC’s claim:
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Plaintiff contends inter alia that it has legal and
equitable right, title, and interest in the monies and
assets remaining in the estate of and in IEL’s stock, and
shares, certificates, and value of such stock.
. . . .
. . . Plaintiff requests this Court to make and enter
a binding judicial declaration in accordance with
Plaintiff’s contentions.
The complaint also requested an injunction enjoining all of the
defendants, including the Liquidator from, in part, “paying,
transferring, assigning, encumbering, or otherwise disposing any
and all assets, accounts, and monies of IEL; and . . . from
creating or permitting anyone to create any further debt,
liability, or other obligation from IEL to any person.” These
statements demonstrate that IELHC continued to assert a claim on
all assets remaining in IEL’s estate, sought to deprive the
Liquidator of his power to adjudicate this or any claims against
IEL’s estate, and sought instead to vest the California Courts
with the power to adjudicate IELHC’s claim.
To allow a court other than the liquidation court sole
jurisdiction to adjudicate a claim against the estate of an
insolvent insurer is contrary to the purpose of ISRLA. ISRLA
seeks to enhance the efficiency and equitability of insurance
liquidation by providing the insurance commissioner of Hawai#i
and the Circuit Court for the First Circuit with jurisdiction
over delinquency and liquidation proceedings within the state.
See HRS §§ 431:15-101 and 431:15-104 (2005). Once a liquidator
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has been appointed, “ISRLA provides for an automatic stay of all
proceedings against the insolvent insurance company and the
liquidator.” Four Star Ins. Agency, Inc., 89 Hawai#i at 432, 974
P.2d at 1022; see also HRS § 431:15-313 (2005) (“[N]o action at
law or equity shall be brought against the insurer or
liquidator.”). Furthermore “[n]o judgment or order against an
insured or the insurer entered after the date of filing of a
successful petition for liquidation, and no judgment or order
against an insured or the insurer entered at any time by default
or by collusion need be considered as evidence of liability or of
quantum of damages.” HRS § 431:15-326(d). “Based upon the
statutory scheme and the underlying purposes of ISRLA, the
legislature intended to grant the Commissioner the broad powers
to facilitate an orderly liquidation of an insolvent insurance
company and to ensure an equitable apportionment between
creditors of any losses that may result.” Four Star Ins. Agency,
Inc., 89 Hawai#i at 433, 974 P.2d at 1023.
Under a discretionary interpretation of the proof of
claim statute, IELHC’s First Amended Complaint in its California
Lawsuit is similar to a proof of claim because it asserts a claim
to all of the remaining assets in IEL’s estate by right of
IELHC’s position as the sole shareholder of IEL. Furthermore, to
promote ISRLA’s goals of uniformity and equitability, the
Liquidator should have the authority to recognize this lawsuit as
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a claim against IEL’s estate and adjudicate it as such pursuant
to the provisions of HRS § 431, article 15. However, it is
unnecessary to determine whether the California Lawsuit was the
substantial equivalent of a proof of claim, such that it would
trigger the Liquidator’s adjudication, because the first letter
alone sufficiently satisfied the HRS § 431:15-326 proof of claim
requirements.
Due to the discretionary nature of Hawai#i’s proof of
claim statute, the liquidation court did not abuse its discretion
in concluding that, taken together, IELHC’s two letters and its
California Lawsuit constituted a claim against IEL’s estate.
C. Subject Matter Jurisdiction
We have defined subject matter jurisdiction as
“‘jurisdiction over the nature of the case and the type of relief
sought’” and “‘the extent to which a court can rule on the
conduct of persons or the state of things.’” County of Hawai#i
v. C & J Coupe Family Ltd. P’ship, 119 Hawai#i 352, 368, 198 P.3d
615, 631 (2008) (alterations omitted) (quoting Black’s Law
Dictionary 870 (8th ed. 2004)). Whether the liquidation court
has subject matter jurisdiction over IELHC’s claim is a question
of law reviewable de novo.
IELHC argues that the Liquidator and the liquidation
court have no subject matter jurisdiction over the purported
claim because IELHC never submitted a claim pursuant to HRS §
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431:15-326. IELHC maintains that the Liquidator created the
claim and is now attempting to assert jurisdiction over this
manufactured claim. IELHC also alleges that the “claim” that the
Liquidator is purporting to adjudicate is the entire California
Lawsuit. It argues that “[a]lthough [the Liquidator] swept the
entire California Lawsuit within his broad definition of ‘IELHC
Claim,’ the California Lawsuit is not a ‘delinquency proceeding,’
was not commenced by [the Liquidator], and is not brought against
an insolvent insurer.” IELHC concludes that because ISRLA does
not grant the Liquidator or the liquidation court jurisdiction
over a claim that IELHC never asserted or over all of the causes
of action in IELHC’s California Lawsuit, the Liquidator lacked
subject matter jurisdiction in this proceeding.
IELHC’s argument that the liquidation court lacks
jurisdiction fails because, as established above, IELHC did
assert a claim against IEL’s estate pursuant to ISRLA, and
neither the Liquidator nor the liquidation court have purported
to adjudicate the other claims raised in the California Lawsuit.
IELHC is correct that the Liquidator and the
liquidation court’s subject matter jurisdiction is limited by the
terms of ISRLA. ISRLA gives the liquidation court jurisdiction
over claims asserted against an insolvent insurer’s estate.
ISRLA states that “[t]he liquidator shall review all claims duly
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filed in the liquidation.” HRS § 431:15-333(a).34 When the
liquidator denies a claim, written notice is provided to the
claimant and the claimant has sixty days to file any objection
with the liquidator. HRS § 431:15-329(a).35 When the liquidator
does not alter the denial following the filing of objections,
“the liquidator shall ask the court for a hearing as soon as
practicable.” HRS § 431:15-329(b). ISRLA’s statute regarding
jurisdiction and venue states that all actions authorized under
34
HRS § 431:15-333 provides, in part:
Liquidator’s recommendations to the court. (a) The
liquidator shall review all claims duly filed in the
liquidation and shall make such further investigation as the
liquidator shall deem necessary. The liquidator may
compound, compromise, or in any other manner negotiate the
amount for which claims will be recommended to the court,
except where the liquidator is required by law to accept
claims as settled by any person or organization, including
any guaranty fund or association, or foreign guaranty fund
or association. . . .
(b) The court may approve, disapprove or modify the report
on claims by the liquidator. . . .
35
HRS § 431:15-329 provides:
Disputed Claims. (a) When a claim is denied in whole or in
part by the liquidator, written notice of the determination
shall be given to the claimant or the claimant’s attorney by
first class mail at the address shown in the proof of claim.
Within sixty days from the mailing of the notice, the
claimant may file any objections with the liquidator. If no
such filing is made, the claimant may not further object to
the determination.
(b) Whenever objections are filed with the liquidator and
the liquidator does not alter the denial of the claim as a
result of the objections, the liquidator shall ask the court
for a hearing as soon as practicable and give notice of the
hearing by first class mail to the claimant or the
claimant’s attorney and to any other persons directly
affected, not less than ten nor more than thirty days before
the date of the hearing. The matter may be heard by the
court or by a court appointed referee who shall submit
findings of fact along with such referee’s recommendations.
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HRS § 431, article 15 “shall be brought in the circuit court of
the first circuit” -- the liquidation court. HRS § 431:15-
104(g).
Here, the Liquidator reviewed IELHC’s claim asserted in
the first letter and in the First Amended Complaint in the
California Lawsuit.36 The Liquidator denied IELHC’s claim, and
IELHC filed objections. After determining not to alter the
denial of the claim following IELHC’s objections, the Liquidator
properly filed a Motion for an Order Confirming the Liquidator’s
Determination of a Disputed Claim. Pursuant to HRS § 431:15-
104(g) and HRS § 431:15-329(b), the circuit court of the first
circuit had subject matter jurisdiction over this motion.
D. Personal Jurisdiction
The liquidation court’s ability to exercise personal
jurisdiction over claimants is limited by the federal due process
requirements of the fourteenth amendment. In Interest of Doe, 83
Hawai#i 367, 373, 926 P.2d 1290, 1296 (1996). We have previously
cited United States Supreme Court precedent regarding personal
jurisdiction stating that:
“‘[I]t is essential in each case that there be some act by
which the defendant purposefully avails itself of the
privilege of conducting activities within the forum State,
36
It is irrelevant that the California Lawsuit also asserted various
other causes of action against various other parties, including the Liquidator
himself. These other causes of action do not insulate IELHC’s claim against
IEL’s estate from the Liquidator and the liquidation court’s jurisdiction.
Conversely, the liquidator and the liquidation court do not have, nor have
they ever sought, jurisdiction over these other causes of action.
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thus invoking the benefits and protections of its laws.’”
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct.
2174, 2183, 85 L. Ed. 2d 528 (1985) . . . . The determining
inquiry is whether “‘the defendant's conduct and connection
with the forum State are such that he should reasonably
anticipate being haled into court there.’” Id. at 474, 105
S.Ct. at 2183 . . . .
Id. (some internal citations omitted) (quoting Shaw v. North Am.
Title Co., 76 Hawai#i 323, 329–30, 876 P.2d 1291, 1297–98
(1994)). Whether the liquidation court properly exercised
personal jurisdiction over IELHC is a question of law reviewable
de novo. Id. at 326, 876 P.2d at 1294.
IELHC argues that the circuit court lacked the
requisite personal jurisdiction to adjudicate its claim against
IEL’s estate. It reasons that, because this court held in
Metcalf v. IEL that IELHC had no standing to oppose the
liquidation of IEL, the liquidation court cannot now assert
personal jurisdiction over IELHC. IELHC then argues that when
the Liquidator filed the motion to initiate the proceedings in
the liquidation court, this commenced a new action, requiring the
Liquidator to issue a summons and provide proper service upon
IELHC. Finally, IELHC states that the Liquidator’s motion sought
not only to adjudicate a claim, but also to enforce a settlement
agreement and a stock subscription agreement. Therefore, IELHC
argues, because the Liquidator did not bring an independent
action to enforce the agreements, the liquidation court has no
personal jurisdiction.
The Liquidator argues that the circuit court properly
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exercised personal jurisdiction over IELHC. He argues first that
IELHC submitted to the liquidation court’s jurisdiction when it
was granted leave to intervene as a party-Respondent by the
Stipulation to Allow Intervention of Investors Equity Life
Holding Company and Order, filed in 1994. He emphasizes that,
while this court held that IELHC lacked standing to oppose IEL’s
liquidation, “[t]he Court did not hold that IELHC was not a
party.” The Liquidator also argues that under ISRLA, the
resolution of a claim against an estate does not require the
commencement of a proceeding separate from the liquidation
proceeding, and any discussion of IELHC’s 1996 settlement
agreement was raised defensively in response to IELHC’s
“affirmative” claim against IEL’s estate. Finally, the
liquidator notes that by filing a claim in the liquidation
proceeding, IELHC has submitted to the jurisdiction of the
liquidation court.
Where a party files a claim with the Liquidator of an
insolvent insurer’s estate, the party has “purposefully avail[ed]
itself of the privilege of conducting activities within the forum
State” such that “he should reasonably anticipate being haled
into court there.” In Interest of Doe, 83 Hawai#i at 373, 926
P.2d at 1296 (quoting Shaw, 76 Hawai#i at 329-30, 876 P.2d at
1297-98). The New York Supreme Court, Appellate Division, has
stated that “it is well established that in filing a proof of
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claim in liquidation, a claimant submits itself to the
jurisdiction of the liquidation court.” Corcoran v. Hall & Co.,
Inc., 545 N.Y.S.2d 278, 282 (1989).
When IELHC filed a proof of claim with the Liquidator,
it submitted itself to the liquidation court’s jurisdiction.
That this court previously held that IELHC lacked standing to
intervene in the liquidation of IEL, in no way demonstrates that
the liquidation court lacked jurisdiction over IELHC. Rather,
IELHC’s previous participation as a party in IEL’s liquidation is
further evidence of IELHC’s submission to the liquidation court’s
jurisdiction.
The Liquidator correctly concludes that the Motion for
an Order Confirming the Liquidator’s Determination of a Disputed
Claim did not initiate a new suit, but was instead a continuation
of the liquidation proceeding. ISRLA provides procedures for the
judicial review of disputed claims:
[T]he liquidator shall ask the court for a hearing as soon
as practicable and give notice of the hearing by first class
mail to the claimant or the claimant’s attorney and to any
other persons directly affected, not less than ten nor more
than thirty days before the date of the hearing. The matter
may be heard by the court or by a court appointed referee
who shall submit findings of fact along with such referee’s
recommendations.
HRS § 431:15-329(b). These provisions do not require the
liquidator to initiate a separate action in circuit court
pursuant to the Hawai#i Rules of Civil Procedure. ISRLA provides
for the liquidation court’s review of the disputed claim, as it
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provides for the court’s review of all claims submitted to the
liquidator. See HRS § 431:15-333(b) (“The court may approve,
disapprove or modify the report on claims by the liquidator.”).
Here, the Liquidator’s motion, submitted in response to IELHC’s
claim, was properly filed with the liquidation court as part of
IEL’s liquidation proceedings and it did not initiate any new
actions.
E. Abatement
Abatement is “‘the suspension or defeat of a pending
action for a reason unrelated to the merits of the claim.’” C &
J Coupe Family Ltd. P’ship, 119 Hawai#i at 368, 198 P.3d at 631
(alterations omitted). We have held that “‘where the party is
the same in a [prior] pending suit, and the cause is the same and
the relief is the same, a good plea in abatement lies.’” Id. at
371, 198 P.3d at 634 (quoting Shelton Eng’g Contractors, Ltd. v.
Hawaiian Pac. Indus., Inc., 51 Haw. 242, 249, 456 P.2d 222, 226
(1969)); see also Yee Hop v. Nakuina, 25 Haw. 205, 208-09 (1919)
(“[I]f a suit is commenced while a prior suit is pending for the
same cause between the same parties the pendency of the prior
suit is a good plea in abatement . . . .”).
IELHC argues that this case should have been abated
pending the outcome of the California Lawsuit. It reiterates its
earlier argument that the Liquidator’s “unilateral, self-
generated Determination in 2009” initiated the current case, and
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that this case is not a continuation of the liquidation
proceedings begun in 1994 against IEL. IELHC concludes that,
although it does not agree that the California Lawsuit and this
case are between the same parties, because the Liquidator has
characterized the California Lawsuit as the claim, this case may
not proceed until the California Lawsuit is resolved.
The Liquidator responds that IELHC’s argument fails
primarily because the liquidation court correctly concluded that
it has exclusive jurisdiction over claims against IEL’s estate.
The Liquidator also argues that, because the relief sought in the
California Lawsuit differs from the relief sought here, abatement
is inapplicable. The relief sought in the California Lawsuit is
“a declaration that it is entitled to delivery of IEL’s stock and
the residual assets of its estate, and an injunction as to any
activity related to assets of the estate.” Whereas, the relief
sought here is a “confirmation of the Liquidator’s determination
that IELHC was not entitled to the IEL’s stock or assets.”
Furthermore, the Liquidator argues, both the liquidation action
and IELHC’s claim, in the form of its first letter, commenced
before the California Lawsuit.
This issue is most easily resolved by noting that, as
discussed above, the liquidation court’s review of disputed
claims is conducted as part of the liquidation court’s continuing
and exclusive jurisdiction over the liquidation of an insolvent
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insurer. See HRS § 431:15-104(c) (“No court of this State has
jurisdiction to entertain, hear or determine any complaint
praying for the dissolution, liquidation, rehabilitation,
sequestration, conservation, or receivership of any insurer, or
praying for an injunction or restraining order or other relief
preliminary to, incidental to, or relating to that type of
proceedings other than in accordance with this article.”); HRS §
431:15-105(a) (2005) (“Any receiver appointed in a proceeding
under this article may, at any time apply for and the circuit
court of the first circuit may grant, under the relevant
provisions of the Hawaii Rules of Civil Procedure, any
injunctions, any restraining orders, and other orders as may be
deemed necessary and proper . . . .”). The liquidation court’s
jurisdiction over the liquidation of IEL’s estate began in 1994,
proceeding the commencement of the California Lawsuit by fifteen
years. Therefore, this action cannot be abated by the subsequent
California Lawsuit. Furthermore, that the California Lawsuit
reiterates an earlier claim against IEL’s estate does not abate
the liquidation court’s review of the claim where the California
Lawsuit involved different parties, different causes of action,
and sought different relief.
F. Due Process
The fourteenth amendment of the United States
Constitution and article I, section 5 of the Hawai#i Constitution
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provide that no person shall be deprived of “life, liberty, or
property without due process of law.” State v. Bani, 97 Hawai#i
285, 293, 36 P.3d 1255, 1263 (2001). The due process clause
seeks to protect individuals from arbitrary governmental
deprivation of property and liberty rights. Id. Procedural due
process requires “notice and an opportunity to be heard at a
meaningful time and in a meaningful manner before governmental
deprivation of property interest.” In re #Îao Ground Water Mgmt.
Area High-Level Source Water Use Permit Applications, 128 Hawai#i
228, 267, 287 P.3d 129, 168 (2012) (quoting Troyer v. Adams, 102
Hawai#i 399, 437, 77 P.3d 83, 121 (2003)). “‘[D]ue process is
flexible and calls for such procedural protections as the
particular situation demands.’” Ko#olau Agric. Co., Ltd. v.
Comm’n on Water Res. Mgmt., 83 Hawai#i 484, 496, 927 P.2d 1367,
1379 (2012) (quoting Sandy Beach Def. Fund v. City Council of
City & Cnty. of Honolulu, 70 Haw. 361, 378, 773 P.2d 250, 261
(1989)).
IELHC advances a variety of vague arguments in support
of its contention that its due process rights have been violated.
It contends that in classifying the California Lawsuit as a claim
against IEL’s estate, the Liquidator and the liquidation court
have effectively adjudicated all of the causes of action raised
in that suit. IELHC argues that because this alleged claim
encompasses a common law cause of action for damages, it has a
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right to a jury trial that has been violated. IELHC also argues
that it is a violation of due process for the Liquidator, a
defendant accused of fraud in the California Lawsuit, to
adjudicate IELHC’s claim. IELHC accuses the Liquidator of
serving “in both an adjudicative and advocative function,”
impermissibly “commingl[ing] prosecutorial and adjudicatory
functions.” IELHC’s final argument is that the Liquidator and
the liquidation court employed summary procedures, despite the
fact that there existed a genuine issue of material fact.
The Liquidator begins by refuting IELHC’s assertion
that “the Liquidator ‘swept the entire California Lawsuit within
his broad definition of [the] IELHC Claim.’” He quotes language
from the Notice of Determination establishing that the
Liquidator’s determination only addressed the issue of IELHC’s
purported ownership of shares in IEL and its resultant claim to
distributions from IEL’s estate. The Liquidator then cites
precedent from other jurisdictions establishing that there is no
right to a jury trial in insurance liquidation proceedings
because these are equitable proceedings, analogous to the
proceedings of a bankruptcy court. The Liquidator next contends
that IELHC’s arguments regarding the summary nature of the
proceedings are without merit. The Liquidator notes that IELHC
had the opportunity to present evidence to the liquidation court
and that IELHC never requested an evidentiary hearing.
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Furthermore, the Liquidator stresses that the summary judgment
motion standard, which precludes summary judgment where “‘there
is a genuine issue for trial,’” is inapplicable here “because the
ISRLA does not provide for a trial.” Finally, the Liquidator
argues that although IELHC objects to the process in which its
claim was adjudicated pursuant to ISRLA, IELHC never specifically
challenges the constitutionality of ISRLA’s claims adjudication
procedures.
As established above, IELHC’s first claim asserted a
claim to all remaining assets in IEL’s estate based on its
position as the sole shareholder of IEL. This letter initiated
the claims adjudication process administered by the Liquidator
and the liquidation court. Although the Liquidator referred to
the additional information provided by the California Lawsuit,
the Liquidator never purported to adjudicate claims aside from
those asserted in the first letter. In the Notice of
Determination, the Liquidator stated that “IELHC filed its
initial claim with the Liquidator on April 23, 2008,” and “IELHC
filed additional information with respect to the IELHC Claim in
the form of the California Lawsuit.”
Because the remaining claims in IELHC’s California
Lawsuit were not adjudicated by the Liquidator or the liquidation
court, IELHC may not assert any due process violations with
respect to these claims. The Liquidator has never attempted to
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adjudicate the fraud claims IELHC asserted against him in the
California Lawsuit, and therefore there is no impermissible
commingling of roles. Whether IELHC is entitled to a jury trial
on the claims from the California Lawsuit is not an issue
properly before this court.
In adjudicating IELHC’s claim against IEL’s estate, the
Liquidator followed the claims adjudication process established
in ISRLA. See HRS § 431:15-329. IELHC was given, and took
advantage of, numerous opportunities to respond to the
Liquidator’s determination in the form of letters to the
Liquidator and briefs to the liquidation court. The liquidation
court then held a hearing on August 23, 2010, during which IELHC
argued the merits of its case. IELHC requested no further
hearings.
IELHC has not alleged that the Liquidator or the
liquidation court did not follow ISRLA’s procedures or
specifically challenged the constitutionality of ISRLA. Rather,
IELHC objects to the “summary” nature of the proceedings. Where
an appellant makes general assertions of a due process violation,
without further elaboration or citation to authority, the court
cannot reach a reasoned conclusion, and the due process argument
is deemed waived. C & J Coupe Family Ltd. P’ship, 119 Hawai#i at
373, 198 P.3d at 636. Because the liquidation court followed
ISRLA, and IELHC does not specify how the ISRLA proceedings do
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not meet constitutional due process requirements, IELHC’s due
process claim fails.
G. Time Bar/Estoppel
The doctrine of judicial estoppel serves to bar a party
from taking a position in a subsequent lawsuit that is
inconsistent with a position it took in a previous lawsuit. We
have previously stated that “‘a party will not be permitted to
maintain inconsistent positions or to take a position in regard
to a matter which is directly contrary to, or inconsistent with,
one previously assumed by him, at least where he had, or was
chargeable with, full knowledge of the facts, and another will be
prejudiced by his action.’” Lee v. Puamana Cmty. Ass’n, 109
Hawai#i 561, 576, 128 P.3d 874, 889 (2006) (alterations omitted)
(quoting Roxas v. Marcos, 89 Hawai#i 91, 124, 969 P.2d 1209, 1242
(1998)).
IELHC argues that the Liquidator is estopped from
arguing that IELHC’s claim is time barred because during the
California Lawsuit the Liquidator asserted that the Hawai#i
statute of limitations had not expired. IELHC did not raise this
argument to the circuit court, but it now asserts that it may
invoke the doctrine for the first time before the appellate
court.
Although the Liquidator agreed to toll the statute of
limitations from the date the California Lawsuit was filed, he
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did not stipulate to waiving any applicable time bars. In its
opinion, the California Court of Appeal’s specified that the
issue of the timeliness of IELHC’s claim would remain an issue
were the claim litigated in the Hawai#i courts. IELHC v.
Schmidt, 126 Cal. Rptr. 3d at 144. The court stated:
Defendants have agreed to toll the statute of
limitations from February 25, 2009, the date plaintiff filed
its California action, to the date plaintiff files suit in
Hawai#i. Their second stipulation makes clear that, if this
action is refiled in Hawaii, one issue will be the
timeliness of any claims time barred in that state as of
February 25, 2009.
Id. Because the Liquidator did not agree to waive the time bar,
he was not estopped from recommending that the liquidation court
hold IELHC’s claim to be untimely.
The underlying policy for establishing a claim bar
date, as with a statute of limitations, is “the prompt assertion
of claims.” Blair v. Ing, 95 Hawai#i 247, 266, 21 P.3d 452, 471
(2001). ISRLA allows a late filing claimant to share in
distributions, “to the extent that such payment will not
prejudice the orderly administration of the liquidation,” if
“[t]he existence of the claim was not known to the claimant
and . . . the claimant filed such claim as promptly as reasonably
possible after learning of it.” HRS § 431:15-325(b). The
Liquidator may consider other late claims not meeting this
criteria, and may “permit it to receive distributions which are
subsequently declared on any claims of the same or lower priority
if the payment does not prejudice the orderly administration of
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the liquidation.” HRS § 431:15-325(d). The language of HRS §
431:15-325 establishes that this exception to the claim bar date
is purely discretionary.
IELHC’s claim against IEL’s estate was first asserted
on April 23, 2008, more than twelve years after the claim bar
date of December 1, 1995. IELHC’s claim is based upon its
assertion that the Liquidator did not validly forfeit IELHC’s
shares after they were surrendered in 1996 and that IELHC
therefore remains the sole shareholder of IEL. IELHC’s attorneys
were present at the circuit court hearing approving IELHC’s
settlement agreement and the stock subscription agreement.
Therefore, if these agreements were in someway defective, and if
IELHC had remained the sole shareholder of IEL as it now attests,
IELHC should have been aware of its status and its resultant
shareholder claim against IEL’s estate in 1996. Instead, IELHC
waited another eleven years before asserting its claim.37 The
liquidation court did not abuse its discretion in concluding that
IELHC’s claim was time barred because IELHC waited more than
eleven years before notifying the Liquidator of its claim against
IEL’s estate.
37
IELHC maintains that its claim accrued in 2008, after the filing
of the Liquidator’s February 27, 2008 report on the status of IEL’s estate.
IELHC states that this report showed a surplus in IEL’s estate, assuming that
IEL’s debts to HLDIGA are invalid. However, IELHC does not establish how this
report differs from any of the earlier reports showing large debts owing to
HLDIGA. Furthermore, even if IELHC’s assertions regarding HLDIGA were
correct, there is no authority establishing that a claim accrues only when the
debtor becomes solvent.
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H. Shareholder Status
Although the liquidation court noted that IELHC’s
claims were untimely, it ultimately decided the case on the
merits of IELHC’s argument. The court concluded that IELHC was
not a shareholder of IEL, and thus it had no ground for asserting
claims against IEL’s estate. It stated:
IELHC is not the legal or equitable shareholder of IEL.
. . . IELHC voluntarily relinquished its shares as part of
the Settlement Agreement approved by this Court. The record
affirmatively demonstrates that IELHC has no current
interest in IEL’s estate and is not entitled to a
distribution from the IEL estate as a shareholder of IEL.
IELHC does not have any current legal or equitable interest
in IEL’s stock and IELHC was not wrongfully deprived of its
shares.
In the section of its brief entitled “Statement of the
Points on Appeal,” IELHC states that these conclusions of law are
in error because “they incorrectly decided the ownership and
disposition of Appellant’s shares of stock of IEL.” However, in
the argument section of its brief, IELHC presents no arguments to
refute the liquidation court’s conclusion that IELHC is no longer
a shareholder of IEL.38 Under the Hawai#i Rules of Appellate
Procedure, if an appellant does not argue a point of error, the
38
In the section of IELHC’s opening brief concerning due process
violations, IELHC includes a list of material facts in dispute as evidence of
why summary adjudication procedures were inappropriate. IELHC lists the
ownership of IEL’s stock as one of these facts in dispute. IELHC states that
its claim to IEL’s stock is based upon its interpretation of HRS § 431:5-101,
which it claims the Liquidator did not comply with in cancelling IELHC’s
shares and issuing new shares to be held in trust for HLDIGA. See also supra
note 21 (quoting HRS § 431:5-101). This short discussion of the ownership of
IEL’s stock is not an argument in support of IELHC’s ownership of the shares,
but rather a summary of a fact in dispute.
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court may consider it waived. HRAP Rule 28(b)(7) (2010) (“Points
not argued may be deemed waived.”). Because IELHC does not argue
that the liquidation court erred in concluding that it was not a
shareholder of IEL, we may consider this issue waived.
Furthermore, because IELHC’s claim was untimely, there was not a
need for the liquidation court to reach the question of IELHC’s
shareholder status. We may therefore affirm the liquidation
court’s order denying IELHC’s claim, without reviewing the
liquidation court’s determination that IELHC no longer holds
shares in IEL. See Del Monte Fresh Produce (Haw.), Inc. v. Int’l
Longshore & Warehouse Union, Local 142, 128 Hawai#i 289, 304, 287
P.3d 190, 205 (2012) (“[T]his court can affirm the decision of a
lower tribunal on any ground appearing in the record.”).
V. CONCLUSION
For the reasons stated above, we affirm the circuit
court’s order granting the Liquidator’s motion for an order
confirming the Liquidator’s determination of a disputed claim.
James J. Bickerton /s/ Paula A. Nakayama
and Nadine Y. Ando
for appellant /s/ Edwin C. Nacino
William C. McCorriston /s/ Rom A. Trader
and John Y. Yamano
for appellee Gordon Ito, /s/ Randal K.O. Lee
Insurance Commissioner
of the State of Hawai#i
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David J. Reber,
and Lindalee K. Farm and
Franklin D. O’Loughlin,
pro have vice and
Cindy C. Oliver,
pro hac vice, for appellee
Hawaii Life and Disability
Insurance Guaranty Association
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