Segal v. Illinois Department of Insurance

1-09-2214
SECOND DIVISION
October 19, 2010
No. 1-09-2214
MICHAEL SEGAL, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
)
THE ILLINOIS DEPARTMENT OF INSURANCE, and )
MICHAEL T. McRAITH, Director of THE ILLINOIS )
DEPARTMENT OF INSURANCE, ))
)) Honorable Nancy J.
Defendants-Appellees. Arnold,
Judge Presiding.
JUSTICE KARNEZIS delivered the opinion of the court:
In this administrative review action, plaintiff Michael Segal appeals from a final
order on remand of The Illinois Department of Insurance (Department), and Michael T.
McRaith, Director of The Illinois Department of Insurance (Director), revoking his
insurance license and ordering him to pay a $100,000 civil penalty. For the following
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reasons, we affirm the judgment of the circuit court.
Background
In 2002, Segal and Near North Insurance Brokerage, Inc. (NNIB), were indicted
by a federal grand jury and charged with 27 counts of racketeering, mail and wire fraud,
false statements, embezzlement, and conspiring to impede the Internal Revenue
Service. In June 2004, Segal was convicted, sentenced to over 10 years in federal
prison and personally ordered to pay around $800,000 in restitution. Segal was also
ordered to forfeit $30 million and required to give up his interest in NNIB. As a result,
Segal was sent to a federal prison in Oxford, Wisconsin, where he currently resides.
On June 24, 2004, the then-Acting Director of the Department issued an order
revoking both Segal's and NNIB's insurance licenses, assessing them a $1.5 million
civil penalty, and ordering them to return over $1 million to certain consumers. The
order was based on numerous violations of the Illinois Insurance Code (215 ILCS 5/1 et
seq. (West 2004)) (Insurance Code). The order specified that the Department's
investigation revealed numerous deficiencies in the premium fund trust account, which
violated numerous sections of the Insurance Code as well as insurance law, allowing
for the Director to revoke the licenses pursuant to section 500-70(a) of the Insurance
Code (215 ILCS 5/500-70(a) (West 2004)). The order further provided that it would
take effect in 30 days or would be stayed if within the 30-day period a written request
for a hearing was filed with the Director.
Within 30 days of the revocation order, attorney Kirk H. Petersen requested a
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hearing on behalf of Segal.1 The hearing was initially scheduled before a hearing
officer on September 29, 2004, but was subsequently postponed. Although the
Director's order revoking Segal's license was stayed pending the requested hearing,
Segal did not attempt to renew his license and it lapsed on February 1, 2005.
Thereafter, the parties conducted discovery and engaged in lengthy settlement
negotiations, which ultimately failed to result in a settlement. As a result, on February
26, 2007, the hearing officer issued an order rescheduling Segal's hearing for May 2,
2007. The proof of service indicated that the order was "served upon the Attorneys of
record or parties to the above cause by enclosing the same in an envelope sent and
addressed to such attorneys or parties at their business address as disclosed by the
pleadings of record herein."
On March 12, 2007, Segal's attorney sent a letter to Segal at Segal's prison
address, notifying Segal of his intent to withdraw as counsel. The letter is not part of
the record on appeal. Segal's attorney then filed a motion to withdraw with the
Department on April 9, 2007, which was granted on April 11, 2007. A copy of the
motion to withdraw was also sent to Segal. The motion does not reference the May 2,
2007, hearing date. On April 12, 2007, the hearing officer sent Segal a letter notifying
him that his attorney's motion to withdraw had been granted and that the hearing
regarding the revocation order was scheduled for May 2, 2007. Segal claims that he
1
NNIB was represented by separate counsel and was ultimately severed from
the proceedings.
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received the letter sometime after the hearing.
The hearing commenced on May 2, 2007. Before the proceedings began, the
hearing officer noted that "Mr. Segal is not here, nor is a representative for Mr. Segal in
the room." At the hearing, Brett Gerger, a representative from the Department, testified
that he prepared a document on August 3, 2004, relating to the fine recommended to
be imposed on Segal and NNIB based on the order of revocation. Gerger stated that
he recommended a $1.5 million fine to the chief legal counsel for the Division of
Insurance. The document was then admitted into evidence. Gerger testified that he
was the lead examiner during the Department's investigation of Segal and NNIB, which
led to the order of revocation. Gerger summarized the findings in the order of
revocation, which related to the premium fund trust account being "out of trust," or short
large amounts of money. He also stated that customers who had overpaid for
insurance or were due a refund either never received a refund or did not receive it in a
timely manner as provided in the Insurance Code. Gerger further testified that
commission withdrawals and service fees were not done properly as provided in the
Insurance Code. At the end of the hearing, the Department made a motion to find
Segal in default pursuant to section 2402.200 of Title 50 of the Illinois Administrative
Code (50 Ill. Adm. Code §2402.200) (Title 50 of the Administrative Code). The hearing
officer granted the motion, finding Segal in default for failing to appear.
On June 12, 2007, new counsel for Segal, the law firm of Edward T. Joyce &
Associates, P.C., contacted the Department to file an appearance on behalf of Segal.
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On September 4, 2007, the hearing officer issued his "Findings of Fact,
Conclusions of Law and Recommendations." The officer found that the Director had
properly revoked Segal's insurance license pursuant to sections 500-70(a)(1), (a)(2),
(a)(3), (a)(4) and (a)(8) of the Insurance Code (215 ILCS 5/500-70(a)(1), (a)(2), (a)(3),
(a)(4) and (a)(8) (West 2006)), and had properly assessed Segal a $1.5 million fine for
multiple violations of the Code. The officer recommended to the Director that the
Director issue a final order revoking Segal's license and assessing Segal a civil penalty
of $1.5 million.2
On September 17, 2007, the Director of the Department adopted the hearing
officer's "Findings of Fact, Conclusions of Law and Recommendations." The Director
ordered that Segal's license was revoked and assessed Segal a $1.5 million civil
forfeiture for multiple violations of the Insurance Code. The order further provided that
it was a final administrative decision pursuant to the Illinois Administrative Procedure
Act (5 ILCS 100/1-1 et seq. (West 2006)) and appealable pursuant to the Illinois
Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2006)).
On October 1, 2007, Segal filed a "motion for rehearing of, or to reopen, the May
2, 2007, hearing." Attached to the motion was an affidavit from Segal's new counsel
alleging that Segal had not received notice of the May 2, 2007, hearing until after the
hearing had occurred. The Department denied the motion on November 28, 2007.
2
Various documents refer to the $1.5 million as a "fine," "civil penalty," or "civil
forfeiture."
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Segal filed his complaint for administrative review on December 28, 2007.
Attached to a memorandum Segal later filed with the court was an affidavit dated
December 19, 2008, in which he averred that the mail at the prison could be slow to
reach him and slow to send out. However, the affidavit contained no specific facts
regarding receiving notice of the May 2, 2007, hearing. On February 20, 2009, the
circuit court affirmed in part, holding that Segal had notice of the hearing because his
attorney received notice and he was properly defaulted pursuant to section 2402.200 of
Title 50 of the Administrative Code for failing to appear. The court did not reach the
merits of Segal's argument that the Director's final order was against the manifest
weight of the evidence, because it found that by reason of Segal's default, the
allegations in the order of revocation went uncontested and justification for revocation
existed. However, the court reversed in part, finding that the $1.5 million "penalty or
civil forfeiture" was not authorized under the Insurance Code because the civil penalty
authorized by the Insurance Code "may total no more than $100,000," citing section
500-70(d) of the Insurance Code (215 ILCS 500-70(d) (West 2008)). The court
remanded the cause to the Department "for the purpose of assessing a civil penalty"
within the parameters of section 500-70 of the Insurance Code.
On remand to the Department, the Director adopted a revised report and
recommendation from the hearing officer on July 7, 2009, proposing that Segal pay a
$100,000 civil penalty as authorized by section 500-70(d) of the Insurance Code. The
Department's final order on remand affirmed the revocation of Segal's license and
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assessed Segal a $100,000 civil penalty. On July 28, 2009, the circuit court issued an
order stating that it reviewed the Director's final order on remand and found the matter
to be "completed." Segal now appeals.
On appeal, Segal first contends that his due process rights were violated
because he did not receive proper notice of the May 2, 2007, hearing or of his
attorney's withdrawal, was not given an opportunity to appear at the hearing, and was
improperly defaulted for failing to appear at the hearing pursuant to section 2402.200 of
Title 50 of the Administrative Code.
Administrative hearings are governed by the fundamental principles and
requirements of due process of law. Abrahamson v. Illinois Department of Professional
Regulation, 153 Ill. 2d 76, 92 (1992). Notice and an opportunity to be heard are
necessary principles of procedural due process. People ex rel. Illinois Commerce
Comm'n v. Operator Communication, Inc., 281 Ill. App. 3d 297, 302 (1996). Notice
must be reasonably calculated "'to apprise interested parties of the pendency of the
action and afford them an opportunity to present their objections.'" Hwang v.
Department of Public Aid, 333 Ill. App. 3d 698, 707 (2002), quoting Stratton v. Wenona
Community Unit District No. 1, 133 Ill. 2d 413, 432 (1990). The central question to
consider is whether notice was adequate at the time that the notice was sent. Hwang,
333 Ill. App. 3d at 707. Due process is not satisfied if the notifying party knew or had
reason to know that notice would be ineffective. Hwang, 333 Ill. App. 3d at 707. The
issue of whether Segal received proper notice is a question of law, which we review de
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novo. Hwang, 333 Ill. App. 3d at 703.
Here, Segal's due process argument centers around his contention that he never
received notice of the May 2, 2007, hearing until after the hearing occurred. However, it
is well settled that notice to an attorney constitutes notice to the client and knowledge of
an attorney is knowledge of, or imputed to the client, notwithstanding whether the
attorney has actually communicated such knowledge to the client. See Eckel v. Bynum,
240 Ill. App. 3d 867, 875 (1992); Williams v. Dorsey, 273 Ill. App. 3d 893, 898 (1995).
Applying this principle, this court in Williams found that the defendants were
properly debarred from rejecting an arbitration award for their failure to appear at an
arbitration hearing. The defendants argued that their attorney never gave them notice
of the date of the arbitration hearing; however, this court found their argument to be
"utterly without merit" because their attorney's knowledge of notice of the hearing was
imputed to them. Williams, 273 Ill. App. 3d at 898.
Similarly, here, Segal's attorney's knowledge of the hearing is imputed to Segal
since Segal was represented by his attorney when the attorney received notice of the
hearing. Notwithstanding Segal's contention that he did not receive notice, Segal
neither argues nor does the record indicate that his attorney did not receive notice of
the hearing. Notice to Segal's attorney constituted notice to Segal, regardless of
whether his attorney actually communicated the notice to Segal. We find it of no legal
significance that Segal's attorney sought to withdraw after receiving notice, because it
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was not, as Segal characterizes it, "on the eve" of the hearing. Segal's attorney sent
Segal a letter of his intent to withdraw on March 12, 2007, and the Department granted
his motion to withdraw on April 11, 2007, about two weeks before the hearing. The
Department then sent Segal a letter notifying him that the motion to withdraw had been
granted. All that due process required in this case was to provide notice of the hearing,
which the Department did when it sent the notice to Segal's attorney. The notice was
adequate at the time it was sent, and there is no evidence in the record that the
Department knew or had reason to know that the notice was, as Segal claims,
ineffective.
Furthermore, as the Department points out, Segal never specifically stated when
he received any of the letters from his attorney or the Department. Segal's affidavit,
which was not filed until December 2008, more than a year after the hearing, does not
mention anything specific about receiving notice. The affidavit merely states general
information about the mail procedures at the prison. Therefore, we find that Segal's
due process rights were not violated under these circumstances.
Nevertheless, we do take this opportunity to comment on the Director's refusal to
reopen the proceedings. Since Segal's motion for "rehearing of or to reopen the May 2,
2007 hearing" was in fact a motion to vacate a default judgment, the Director had
considerable discretion. The Director chose not to allow Segal to have an opportunity
for a true hearing notwithstanding the affidavit of Segal's new counsel that suggested
that Segal never received actual notice of the May 2, 2007, hearing prior to its
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commencement. We also note that when Segal's new counsel first contacted the
Department to request a hearing, the report of the May 2, 2007 proceedings, including
findings of fact and conclusions of law, had not yet been completed. The Department's
ruling was not issued until nearly four months later. This delay suggests that had the
Director chosen to do so, he could have allowed Segal an opportunity to be heard.
However, in exercising his considerable discretion, the Director chose not to allow
Segal that opportunity. While we acknowledge that the denial of Segal's motion was
harsh, we cannot say that the Director's decision was an abuse of discretion such that
no reasonable person would have made the same decision.
Next, Segal argues that the hearing officer's finding and recommendations,
which provided the basis for the Director's final order on remand, are against the
manifest weight of the evidence.
As the circuit court noted in its order disposing of Segal's complaint for
administrative review, the allegations in the order of revocation went uncontested due to
Segal being in default for failing to appear at the hearing.
Section 2402.200 of Title 50 of the Administrative Code provides:
"[f]ailure of a party to appear on the date set for hearing, or failure
to proceed as ordered by the Hearing Officer, shall constitute a default.
The Hearing Officer shall thereupon enter such Findings, Opinions, and
Recommendations as is appropriate under the pleadings and such
evidence as he shall receive into the record." 50 Ill. Adm. Code
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§2402.200.
Section 3-102 of the Administrative Review Law further provides in part:
"[I]f under the terms of the Act governing the procedure before an
administrative agency an administrative decision has become final
because of the failure to file any document in the nature of objections,
protests, petition for hearing or application for administrative review within
the time allowed by such Act, such decision shall not be subject to judicial
review hereunder excepting only for the purpose of questioning the
jurisdiction of the administrative agency over the person or subject
matter." 735 ILCS 5/3-102 (West 2008).
In Department of Public Aid v. Hokin, 175 Ill. App. 3d 646 (1988), this court
interpreted section 3-102 of the Administrative Review Law to provide that "if an
administrative decision has become final because of a party's default, then that
decision shall not be subject to judicial review, except only for the purpose of attacking
the agency's jurisdiction over the person or subject matter." Hokin, 175 Ill. App. 3d at
650. In Hokin, the defendant, a dentist and provider of dental services to Medicaid
recipients, failed to attend an administrative hearing regarding whether he had been
overpaid for his services. The hearing proceeded in the defendant's absence and a
final administrative decision by the Department of Public Aid was issued. The
defendant subsequently never filed a complaint for judicial review of the decision. On
appeal from the trial court's dismissal of the Attorney General's complaint seeking
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enforcement of the Department of Public Aid's decision that the defendant had been
overpaid, this court found that the defendant could not contest the merits of the
decision because the decision was made final due to the defendant's default. Hokin,
175 Ill. App. 3d at 651.
This court also concluded in Hwang, that when an individual is defaulted, that
individual is precluded on appeal from raising any issues other than notice. Hwang,
333 Ill. App. 3d at 708. In Hwang, the Department of Public Aid terminated the eligibility
of the plaintiff, a doctor, to participate as a provider in the Medicaid program. The
plaintiff neither requested a hearing regarding the Department of Public Aid's decision
nor attended the hearing regarding the decision. The plaintiff was found to be in default
and a final administrative decision was issued. The plaintiff filed for administrative
review, and the circuit court upheld the Department of Public Aid's decision. On appeal
to this court, we held that because the plaintiff's participation in the Medicaid program
was terminated by default, he was precluded from raising any issues on appeal other
than notice, citing to Hokin and section 3-102 of the Administrative Review Law.
Hwang, 333 Ill. App. 3d at 708-09.
Here, as in Hokin and Hwang, Segal was found to be in default for failing to
appear at the hearing, and pursuant to section 3-102 of the Administrative Review Law,
he is precluded from raising any issue on appeal other than the Department's
jurisdiction. As noted earlier in this opinion, we found the Department's notice to be
sufficient. Therefore, we hold that because Segal was provided proper notice and was
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defaulted, he cannot contest the hearing officer's findings that led to the Director's final
order on remand.
Accordingly, we affirm the judgment of the circuit court, upholding the Director's
final order on remand revoking Segal's insurance license and imposing a $100,000 civil
penalty.
Affirmed.
THEIS, P.J., and CUNNINGHAM, J., concur.
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