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State ex rel. Hudgens v. Sun States Insurance Group, Inc.

Court of Appeals of Georgia, First Division

March 27, 2015

STATE OF GEORGIA, EX REL., RALPH T. HUDGENS, COMMISSIONER OF INSURANCE FOR THE STATE OF GEORGIA
v.
SUN STATES INSURANCE GROUP, INC.; REGULATORY TECHNOLOGIES, INC.
v.
STATE OF GEORGIA, EX REL., RALPH T. HUDGENS, COMMISSIONER OF INSURANCE FOR THE STATE OF GEORGIA

Editorial Note:

This opinion is uncorrected and subject to revision by the court.

PHIPPS, Chief Judge. Ellington, P.J., concurs. McMillian, J., concurs in Division 1 and concurs in judgment only as to Division 2. Ellington, P.J., and McMillian, J., concur.

OPINION

Phipps, Chief Judge.

The State of Georgia, on the relation of the Commissioner of Insurance, Ralph T. Hudgens, served as liquidator of International Indemnity Company (" IIC" ), an insurance company in liquidation pursuant to the Insurers Rehabilitation and Liquidation Act (the " Act" ). Regulatory Technologies, Inc. (" Reg. Tech" ) assisted in the liquidation of the IIC estate. Sun States, Inc. (IIC's sole shareholder) sought relief from the trial court requiring the liquidator to be liable for money that Sun States alleged was wrongfully taken out of the IIC estate, and requiring the liquidator to pay its attorney fees.

In Case No. A14A2119, the State of Georgia on the relation of the Commissioner of Insurance, Ralph T. Hudgens, as liquidator of IIC, appeals the trial court's denial of its motion to dismiss on the basis of sovereign immunity. In Case No. A14A2120, Reg Tech joins in the appeal filed by the State of Georgia. For the reasons set forth below, we affirm the judgment in part, reverse the judgment in part, and remand the case.

" We review de novo a trial court's denial of a motion to dismiss based on sovereign immunity grounds, which is a matter of law. However, factual findings by the trial court in support of its legal decision are sustained if there is evidence authorizing them." [1]

Pursuant to the Act,[2] in January 2001 the Commissioner of Insurance of the State of Georgia, then John W. Oxendine,[3] was appointed by the superior court as the liquidator of IIC.[4] The liquidator then appointed a deputy liquidator (Donald Roof) and an assistant deputy liquidator (Harry Sivley) to act for him in the liquidation of the IIC estate.[5] Sivley was the co-founding principal and chief executive officer of Reg Tech, and according to Sivley, Reg Tech was an " integrated financial services company formed to assist in the supervision, conservation, rehabilitation and liquidation, of financial institutions and insurance companies." Reg Tech assisted in the liquidation of IIC.

After the liquidation of IIC was concluded, in March 2008 the State of Georgia on the relation of the liquidator (hereinafter " state/liquidator" ) sought an order from the trial court approving the final accounting of the assets and expenses of the liquidated estate and discharging the liquidator, deputy liquidator and assistant deputy liquidator.[6] Sun States, the sole shareholder of IIC, objected to the application for discharge, to the extent of " any other distributions to [Sivley] or [Reg Tech] or their affiliates." [7] Sun States complained about, inter alia, administrative expenses[8] charged to the IIC estate, and asked the court to appoint an independent auditor to review " the change and allocation of administrative costs by Reg Tech and its affiliates and contractors to the IIC Estate."

The court appointed an auditor, and almost sixteen months later (in February 2010), the auditor submitted a report to the court.[9] The state/liquidator filed a modified accounting and application for discharge, incorporating some, but not all, of the credits (in the amount of $210,260.24) the auditor opined were due the IIC estate. In response, the trial court ordered the liquidator to provide certain explanations and additional data to the auditor, and ordered the auditor to supplement his report if he deemed it necessary based on the additional information. In February 2012, as ordered, the state/liquidator supplemented its modified accounting and application and provided additional information to the auditor, and further agreed that additional credits should be made to the IIC estate (in the amount of $433,569.71). But the state/liquidator continued to refute allegations that the IIC estate had been charged excessive administrative expenses in the form of contract compensation, payroll, or overhead expenses for Reg Tech. The state/liquidator asserted that Reg Tech and/or Sivley had drawn funds directly from the IIC estate during the liquidation process to cover the costs of administration expenses, and that it had been done with little or no oversight from the liquidator. The auditor's supplemental report, however, continued to raise issues as to these administrative expenses (payroll expenses, overhead expenses and contractual compensation expenses).

In August 2012, a joint pretrial order was entered. Therein, Sun States stated that it sought an order " surcharging" the liquidator, deputy liquidator, assistant deputy liquidator, and Reg Tech for excessive overhead expenses, over-allocation of contractual compensation, and excessive salary and benefits to Reg Tech personnel -- matters identified in the audit. Sun States also sought attorney fees. The state/liquidator then moved to join Reg Tech as an indispensable party to the litigation; the trial court granted the motion, designating Reg Tech as a " respondent to the pending objection by shareholder [Sun States] to the Liquidator's Modified Accounting." Approximately nine months later (in June 2013), the state/liquidator moved to dismiss Sun States's claims against it, asserting that they were claims for a money judgment against the state; the state/liquidator asserted that the claims were barred by the doctrine of sovereign immunity.

The trial court ruled that the State of Georgia, through the Act, had waived sovereign immunity to the extent that the court could order the liquidator to " repay," or in other words to put back into, the liquidation estate any administrative expenses that were excessive or had been improperly removed from the IIC estate. The trial court also ruled that it had the authority to award attorney fees to Sun States (and thus, would permit evidence on the issue of attorney fees at trial).

Case No. A14A2119

1. The state/liquidator contends that the trial court erred by denying its motion to dismiss and in finding that sovereign ...


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