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36
Cal. App. 4th 363, *;
1995 Cal. App. LEXIS 608, **; 42
Cal. Rptr. 2d 498, ***;
95 Cal. Daily Op. Service 5191 In
re TITLE U.S.A. INSURANCE CORPORATION in Liquidation. CHARLES QUACKENBUSH, as
Insurance Commissioner, etc., Plaintiff and Appellant, v. ARMATO, GAIMS,
WEIL, WEST & EPSTEIN, Defendant and Respondent. No.
G014366. COURT
OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT, DIVISION THREE 36
Cal. App. 4th 363; 1995 Cal. App. LEXIS 608; 42 Cal. Rptr. 2d 498; 95 Cal. Daily
Op. Service 5191; 95 Daily Journal DAR 8707 June
30, 1995, Decided PRIOR HISTORY: [**1] Superior Court of Orange County,
No. 645558, Robert C. Todd, Judge. * *
Retired judge of the Orange Superior Court sitting under assignment by the
Chairperson of the Judicial Council. DISPOSITION: The judgment is reversed. COUNSEL: Daniel
E. Lungren, Attorney General, Edmond B. Mamer and Raymond B. Jue, Deputy
Attorneys General, for Plaintiff and Appellant. Armato,
Gaims, Weil, West & Epstein, Marc C. Epstein and Bruce E. Goldberg for
Defendant and Respondent. JUDGES: Opinion by Wallin, J., with Sonenshine, Acting P. J., and
Rylaarsdam, J., concurring. OPINIONBY: WALLIN, J. OPINION: [*366] [***499]
WALLIN, J. The
Insurance Commissioner of the State of California (the Insurance Commissioner)
was appointed as the conservator and liquidator of Title U.S.A. Insurance
Corporation (Title U.S.A.) in a proceeding brought under section 1010 et seq. of
the Insurance Code. n1 The Insurance Commissioner filed suit against the law
firm of Armato, Gaims, Weil, West & Epstein (Armato) to recover from it
money it obtained pursuant to a judgment against Title U.S.A. for unpaid legal
fees. The trial court concluded the Orange County Superior Court commissioner
who [**2]
appointed the Insurance Commissioner as liquidator of Title U.S.A. lacked
authority to do so and entered judgment in favor of Armato. We reverse. - - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n1 All
statutory references are to the Insurance Code unless otherwise indicated. - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Title
U.S.A. was a title insurance company, incorporated in Texas and licensed to do
business in California, which became insolvent. Its principal California office
was in Irvine. It was licensed to do business in several other states and
liquidation proceedings were commenced in at least nine states, including
California and Texas. ARMATO'S
COLLECTION SUIT On
August 15, 1989, Armato sued Title U.S.A. in Los Angeles County Superior Court
to recover unpaid legal fees. Title U.S.A. maintained a bank account in
Camarillo Community Bank which Armato attached. On August 31, Camarillo
Community Bank closed Title U.S.A.'s account and turned over the balance, $
88,205.92, to the Ventura County Sheriff. On October 17, Armato obtained a
default judgment against Title U.S.A. for $ 158,788.50 [**3]
plus costs. The Ventura County Sheriff then transferred the $ 88,205.92 obtained
from Camarillo Community Bank to Armato. TEXAS
RECEIVERSHIP PROCEEDING On
August 1, 1989, the Texas State Commissioner of Insurance (the Texas Insurance
Commissioner) issued an order declaring Title U.S.A. insolvent and placing it
under his supervision. On August 9, the Texas Insurance Commissioner, pursuant
to an agreement with Title U.S.A., appointed a conservator to take charge of the
company. On September 21, Texas filed a petition for a temporary injunction
preventing Title U.S.A. [*367] from disposing of any of its
assets and for appointment of a receiver. On October 19 a Texas state court
granted the petition and appointed Stephen Durish as liquidator for the Texas
State Board of Insurance and receiver of the company. CALIFORNIA
LIQUIDATION PROCEEDING On
August 11, 1989, the Insurance Commissioner issued an order that Title U.S.A.
cease and desist transacting any new business in California. On November 3, the
Insurance Commissioner filed an ex parte application for an order appointing a
conservator and liquidator for Title U.S.A. (Insurance Commissioner of the State
of California [**4]
v. [***500]
Title U.S.A. (Super. Ct. Orange County, 1989, No. 607330.) A declaration of
Ronald G. Rosen, deputy insurance commissioner, accompanied the application. He
stated that on November 2 he telephoned the offices of the Texas State Board of
Insurance, Liquidation Division, and spoke with the secretary for the director
of legal services, advising her that the ex parte application was being filed.
Rosen testified that on that date he also telephoned Patricia Faust, an officer
of Title U.S.A. located in Irvine, and advised her of the ex parte application. An
Orange County Superior Court commissioner heard the ex parte application and
issued an order appointing a conservator and a restraining order. He also issued
an order to show cause re, appointment of a liquidator, set a hearing for
December 7, and required the Insurance Commissioner to serve the application and
orders on Title U.S.A. by serving the Texas receiver by mail. Rosen later filed
a declaration stating that he personally served Faust with the papers on
November 3. A proof of service filed on November 9, indicated that the
application and orders were served by mail on Durish, liquidator for the Texas
Board of Insurance [**5]
and receiver of the company, on November 6. On November 29, Deputy Attorney
General Raymond B. Jue filed his declaration in compliance with Orange County
Superior Court Local Rule 504, stating that on November 28 he spoke with the
attorney representing the Texas receiver of Title U.S.A. (Durish) and was
advised that the receiver had no objection to the appointment of a liquidator in
California. At the
hearing on December 7, 1989, there were no appearances by Title U.S.A. or Durish.
The Attorney General signed a stipulation that the matter could be heard by a
temporary judge pursuant to California Constitution, article VI, section 21.
Orange County Superior Court Commissioner Ronald [*368]
Bauer, as temporary judge, n2 heard the application and granted it. The
Insurance Commissioner was appointed as liquidator of Title U.S.A. - - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n2 Since
December 1990, Ronald Bauer has been a judge of the Orange County Superior
Court. - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - THE
PRESENT PROCEEDING
In
December 1989 and in early 1990, Armato rejected the [**6]
Insurance Commissioner's demands that it turn over to the Insurance Commissioner
the $ 88,205.92 it obtained in the Los Angeles collection proceeding. On
December 27, 1990, the Insurance Commissioner filed this action to recover the
money. The trial court ruled in favor of Armato, because it concluded
Commissioner Bauer lacked authority to issue the order as there was inadequate
notice of the December 7 hearing to Title U.S.A. and the Texas receiver. I The
trial court correctly noted that the court commissioner who issued the order
appointing a liquidator had authority to render the order as a temporary judge
only if he had been appointed by the parties for that purpose. (Code Civ. Proc.,
§ 259, subd. (e).) It then concluded that the unilateral appointment of the
court commissioner to act as a temporary judge was ineffective because there was
inadequate notice to Title U.S.A. or the Texas liquidator of the December 7
hearing. We
disagree with the trial court's conclusion that notice was inadequate. Notice of
the December 7 hearing was given by service of the application for appointment
of a liquidator and the order to show cause setting the hearing date.
The
trial court was concerned that the Insurance Commissioner failed to show that
the Title U.S.A. officer upon whom he made personal service was authorized to
appear [***501]
in court on the corporation's behalf. There is no such requirement for service
of process.
- - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n3 Even
were we to agree that notice to the Texas authorities was inadequate, we
question the right of Armato, which was not a party to the liquidation
proceeding, to challenge the appointment of a liquidator. However, since the
Insurance Commissioner did not raise the issue, we decline to consider it. - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - Because
notice of the hearing was adequate, the Insurance Commissioner's unilateral
approval of the court commissioner to act as a temporary judge was valid.
II Citing
the familiar rule that a judgment must be upheld if it can be affirmed on any
theory of law applicable, Armato argues that this judgment must be affirmed even
if we conclude the order appointing the Insurance Commissioner liquidator of
Title U.S.A. is valid. It contends that because Texas is Title U.S.A.'s domicile
and a receivership proceeding has been filed there, Texas law controls. Armato
contends that under Texas law it is not required to give back the money. We
conclude that Armato has shown no compelling reason why the Insurance
Commissioner, acting as liquidator of an insurer licensed to do business in
California, pursuant to an order issued by the California court, dealing with
the California assets of the insurer [**10]
and claims against the insurer arising in California, should be bound by Texas
law in carrying out his duties. We begin
with some background as to California insurance law.
- - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n4 Where
appropriate we will explain how the Uniform Act resolves certain issues.
Additionally, we will use some of the definitions in the Uniform Act. (§
1064.1.) For example, the "domiciliary state" is Texas, the state of
incorporation. California is an "ancillary state." A "reciprocal
state" is one which has adopted the Uniform Act. However, a
"reciprocal state" is also one in which the insurance commissioner of
that state has entered into an agreement with the Insurance Commissioner which
provides: "(1) a commissioner or equivalent supervisory official is
required to be the receiver of a delinquent insurer; (2) title to assets of the
delinquent insurer shall vest in the domiciliary receiver, as of the date of any
court order appointing him or her as receiver, and he or she shall have the same
rights to recover those assets as provided under subdivision (b) of Section
1064.3; (3) nondomiciliary creditors may file and prove their claims before
ancillary receivers; (4) the laws of the domiciliary state of the delinquent
insurer shall be applied uniformly to residents and nonresidents in the
allowance of preference of claims, except for claims to special deposits created
under the laws of the domiciliary state; (5) preferences (including attachments,
garnishments, and liens) for creditors with advance information shall be
prevented; and (6) the domiciliary receiver may sue in the reciprocal state to
recover any assets of a delinquent insurer to which he or she may be entitled
under the law." The record indicates that the Insurance Commissioner was
negotiating an agreement with the Texas Insurance Commissioner regarding the
liquidation of Title U.S.A., but there is no indication as to whether it was
executed and whether it fits the above criteria. Therefore, we assume there is
no agreement making Texas a reciprocal state. - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**11]
[***502]
At issue are the California Act's provisions relating to creditors' priorities
and the recovery of an insolvent insurer's property transferred to creditors before
the institution of receivership or liquidation proceedings.
- - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n5
- - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**12]
"To
prevent subversion of this priority scheme and to effect an equitable and
orderly distribution of assets, the [Insurance] Commissioner has the authority
to avoid preferences made to certain creditors before the order of
liquidation." (Cal. Insurance Law & Practice (1986) § 7.06[9], p.
7-55.)
Texas
has similar laws regarding the liquidation of insolvent insurers. (Tex.Ins.Code,
art. 21.28.) Texas Insurance [**13]
Code, article 21.28, section 5, subdivision (a), similarly makes voidable
"[a]ny transfer or lien upon the property or assets" of an insolvent
insurer made within four months of the commencement of delinquency proceedings
if that transfer was made "with the intent of giving to any creditor or
enabling him to obtain a greater percentage of his debt than of any other
creditor of the same class, and which is accepted by such creditor, having
reasonable cause to believe that such preference will occur[.]" Armato
argues that under Texas law, the transfer is not void because there is no
evidence that the attachment or satisfaction of judgment was done with the
specific intent to give it a preference over other general creditors, nor is
there any evidence Armato had reasonable cause to believe it would obtain such a
preference. Whether Texas law indeed requires a specific intent to gain a
preference is irrelevant because California law governs this action. Section
1064.6, subdivision (b) of the Uniform Act provides that if a reciprocal state
has appointed a domiciliary receiver, the priorities established by the laws of
the domiciliary state apply. But when the Uniform Act does not [**14]
apply, "the California Act purports to make [its] priorities applicable to
all claims no matter where the insurer is domiciled." (Cal. Insurance Law
& Practice, supra, § 7.06[9], p. 7-52.)
"It
is no longer open to question that the business of insurance is affected [***503]
with a public interest. The state has an important and vital interest in the
liquidation or reorganization of such a business." ( Carpenter
v. Pacific Mut. Life Ins. Co. (1937) 10 Cal. 2d 307, 329 [74 P.2d 761];
Texas
Commerce Bank [*372]
v. Garamendi (1994) 28 Cal. App. 4th 1234, 1241 [34 Cal.Rptr.2d 155].)
Furthermore,
The
relevant legal principles to a choice of law question have been often
articulated: "
Unlike
most conflict of laws cases in which one state provides a remedy, but another
does not, or one state offers a significantly greater remedy for an injury than
another, in this case we are confronted with similar statutory schemes designed
to further the same state interest--the orderly and equitable distribution of
the assets of an insolvent insurer. Indeed, in Muth
v. Educators Security Ins. Co., supra, 114 Cal. App. 3d 749,
the court noted "public concern for the rights of creditors of insolvent
[**17]
insurance companies appears to be nearly [universal]." ( Id.
at p. 758.) Both states' insolvency schemes contain a similar ranking of
creditor preferences and a provision allowing pre-receivership transfers to be
voided. Research of Texas cases reveals no cases interpreting the Texas statute
expressing the [*373]
purpose behind its voidable preference statute. Presumably, it too is the same
as California's: to ensure the equitable distribution of assets among all
creditors. Armato offers no further specific policy behind what it contends is a
more stringent intent requirement in the Texas statute. Thus there is no
conflict in the policies behind each state's law. Furthermore,
Texas has no conflicting legitimate interest in seeing its preference statute
applied in California. It is interesting to note the Texas statute itself
contemplates this situation, albeit in the reverse. If an insurer domiciled in
California, or any other state, and doing business in Texas became insolvent,
Texas would appoint an ancillary receiver to marshal and liquidate the Texas
assets of that insurer for the payment of claims against that insurer. The Texas
statute specifically states the Texas [**18]
law, not the law of the foreign domicile, would apply to the ancillary
receivership proceedings. (Tex. Ins. Code, art. 21.28, § 13, 15.) n6 - - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n6 Texas
Insurance Code article 21.28, section 13 provides in full: "A court of
competent jurisdiction in this State shall, on the petition of the State Board
of Insurance, appoint the liquidator herein provided as ancillary receiver in
this State of an insurer domiciliary in another state or jurisdiction when under
the laws of this State a receiver should be appointed. The Board shall file such
petition on its own initiative or if ten (10) or more persons resident in this
State, having claims against such insurer, file a petition or petitions in
writing with the Board, requesting the appointment of such ancillary receiver.
Such ancillary receiver shall have the right to sue for and reduce to possession
the assets of such insurer in this State, and shall have the same powers and be
subject to the same duties with respect to such assets, as are possessed by a
receiver of a domiciliary insurer under the laws of this State. On commencement
of the delinquency proceedings in this State, the ancillary receiver in this
State immediately is entitled to possession and control of any special or
statutory deposits of the delinquent insurer located within this State. The
ancillary receiver may use those special or statutory deposits first towards the
payment of expenses of the administration of the receivership proceedings then
towards the payment of approved claims against the deposits. The remaining
provisions of this Article shall be applicable to the conduct of such ancillary
proceedings." (Italics added.) Section
15 provides: "In the event of conflict between the provisions of this
Article and the provisions of any existing law, the provisions of this Article
shall prevail, and all laws, or parts of law, in conflict with the provisions of
this Article, are hereby repealed to the extent of such conflict." - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**19]
[***504]
Cases recognize that
Clark
expressly approved of our own Supreme Court's enunciation of the same rule in Lackmann
v. Supreme Council O.C.F. (1904) 142 Cal. 22 [75 P. 583]. There the
court held the California court would resolve the claims of local creditors to
the California assets of an insolvent foreign corporation with a domiciliary
receiver without [**20]
regard to the laws of the domicile. "It must be treated as the settled law
of this state that as between the receiver of an insolvent foreign corporation,
appointed under the laws of another state not in force here, and a domestic
attaching creditor, both claiming a fund situated in this state, the fund will
be decreed to the domestic creditor, without stopping to inquire into the
legality of the appointment of the receiver or as to his rights under the laws
of his state. Under the laws of our own state the domestic creditor had the
right to attach the property, and no rule of state comity or of law requires us
to set aside this right in deference to a foreign receiver claiming under the
laws of another state." ( Id.
at pp. 25-26. See also Muth
v. Educators Security Ins. Co., supra, 114 Cal. App. 3d at p.
760.) Armato
would have the California court apply Texas law to the liquidation of the
California assets of a foreign corporation doing business in California, to the
detriment of other creditors located in this state. The Insurance Commissioner
acts as trustee for all creditors in California with respect to those
assets. Applying Texas law would do nothing to further [**21]
Texas policy and would damage the interests of the state of California and
creditors here. The voidable preference statute of the California Act applies in
this case. n7 - - - -
- - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n7 We
also reject Armato's argument that applying the California Act deprives it of
equal protection. The argument is that if each state applies its own preference
statutes as to assets located in that state, creditors are treated differently
depending upon the state's law. Only by applying Texas law will all creditors
nationwide be treated similarly. Of course, even were we to apply Texas law, we
cannot guarantee other states would do the same. Our ruling could not give
Armato the uniformity guarantee it seeks. Furthermore, equal protection does not
require uniformity of laws in all states. Rather it requires the fair and equal
application of this state's laws to persons in this state. ( Brown
v. Merlo (1973) 8 Cal. 3d 855, 861-862 [106 Cal.Rptr. 388, 506 P.2d 212, 66
A.L.R.3d 505]; In
re Strick (1983) 148 Cal. App. 3d 906, 913-914 [196 Cal.Rptr. 293].) Clark
v. Williard, supra, 294 U.S. 211 specifically noted there
would not be a uniform policy among the states when liquidators and creditors
compete. ( Id.
at p. 214 [79 L. Ed. at pp. 868-869].) - - - -
- - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**22]
[***505]
Finally, Armato contends that the Insurance Commissioner failed to establish a
voidable preference under California law. Section 1034 allows the Insurance
Commissioner to void a transfer if the transaction enables the creditor "to
obtain a preference over any other creditor of the same class, or a greater
percentage of his or her debt than any other creditor of the same class[.]"
Armato contends there was no evidence that it obtained a preference. Armato,
a general creditor, collected over half of a $ 158,788.50 judgment against Title
U.S.A. Under section 1033, Armato is last in line for payment. [*375]
The Insurance Commissioner presented evidence that while he had received many
general creditor claims, none had been paid. Furthermore, he did not know
whether there would be any money for payment of the general creditors
after satisfying other priorities. In Jones
& Son v. Independence Ind. Co. (1942) 52 Cal. App. 2d 374 [126 P.2d
463], the court held an unsecured general creditor could not execute an
attachment lien on an insolvent insurer's bank account. "If [the creditor]
were permitted to levy on and obtain the dividends held by the bank receiver,
[**23] the
other creditors would be deprived of any share in those dividends, and [the
creditor] would obtain a preference or a greater percentage than other
creditors." ( Id.
at p. 379.) So too here, by levying on the $ 88,205.92 in Title U.S.A.'s
bank account, Armato has deprived all other creditors of the right to share
ratably in that money. It has obtained a preference which is voidable under
section 1034. The
judgment is reversed. Sonenshine,
Acting P. J., and Rylaarsdam, J., concurred. A
petition for a rehearing was denied July 27, 1995 |
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