CLARK, Justice.
This matter comes before the court pursuant to four writ applications filed by the plaintiffs, consolidated here for review. At issue are questions of fact and law
In the trial court, the Louisiana Commissioner of Insurance filed three separate lawsuits against several defendants on behalf of a failing health maintenance organization. One of the lawsuits sounded in contract, the other two sounded in tort. The Oklahoma Commissioner of Insurance and a receiver appointed by the Texas Commissioner of Insurance intervened as plaintiffs in the tort cases on behalf of affiliated health maintenance organizations, organized and doing business in those states, which had similar tort causes of action against the defendants. The three lawsuits—which alleged causes of action in negligence, negligent misrepresentation, conspiracy, fraud, breach of fiduciary duty, unfair or deceptive acts or practices, and contractual liability—were consolidated. Prior to trial, all of the defendants, except one, settled with the plaintiffs. The consolidated matters were tried to both the bench and jury against the sole remaining defendant. Both the judge and jury found in favor of the plaintiffs on the tort and contract causes of action and awarded damages.
The defendant appealed. Finding errors of law which interdicted both the bench and jury findings of fact in the tort claims, the court of appeal conducted a de novo review of the record and reversed the judgments which had been rendered in favor of the plaintiffs and the awards of damages. The court of appeal, in a separate opinion, affirmed the liability of the defendant in the contract matter, but amended the trial court's judgment to reduce the amount of the award. This court granted certiorari to determine the correctness of the court of appeal's rulings.
At the outset we acknowledge this court's recitation of the facts is very different from those discussed in the court of appeal opinion which we now review. Our study of the record convinces us the court of appeal fundamentally misunderstood the facts underlying these complex business transactions and the issues presented. However, we believe the court of appeal's confusion of the issues and failure to understand the facts are somewhat understandable. The record of these three consolidated cases is extensive, consisting of the pleadings in all three cases, a large number of documents and exhibits, and transcripts from numerous pretrial hearings and a lengthy trial.
The operative facts of the tortious conduct to be described are common to all of the claims asserted by the plaintiffs. From the evidence presented at trial, the judge and jury could find the following facts.
Prior to 1997, Foundation Health Corporation ("Foundation"), a Delaware corporation with its principal place of business in California, owned all of the stock of three health maintenance organizations ("HMOs"). These subsidiary HMOs were known as Foundation Health, a Louisiana Health Plan, Inc., a Louisiana corporation operating in the State of Louisiana ("the Louisiana HMO"); Foundation Health, an Oklahoma Health Plan, Inc., an Oklahoma corporation operating in the State of Oklahoma ("the Oklahoma HMO"); and Foundation Health, a Texas Health Plan, Inc., a Texas corporation operating in the State of Texas ("the Texas HMO"). In 1997, Health Systems International acquired Foundation. Thereafter, Health Systems International, Inc. changed its name to Foundation Health Systems, Inc. and is now known as Health Net, Inc. ("Health Net").
Almost from the beginning, Health Net wanted to divest itself of the HMOs. These three HMOs were the smallest plans owned by Health Net, consisting of approximately 75,000 members combined, and did not fit Health Net's overall business strategy. Health Net wanted to focus on its three main business units—on the West Coast in California; on the East Coast in New York, New Jersey and Connecticut; and on its contracts with the Department of Defense. Worse, the HMOs were an immense money drain on Health Net because their insurance premiums were underpriced; their contracts with insurance providers were too low. From 1993 through 1999, Health Net and its predecessor companies were required to infuse $50 million in capital contributions in order to keep these insurance companies in regulatory compliance in their respective states.
Soon after Health Net acquired the HMOs in 1997 through the above-described mergers, its then-CEO, Dr. Hasan, decided Health Net should not finance the HMOs on a continuing basis. Dr. Hasan felt all three states were bad regulatory environments and directed his senior management to begin to "wind down" the plans.
It is important at this juncture to examine some terms and concepts necessary to understand the facts and the claims of the parties. These HMOs, all insurance entities, were regulated by the state insurance departments in their respective states; namely, the Louisiana Department of Insurance ("La-DOI"), the Oklahoma Department
The proper method of accounting for the insurance industry is based on statutory accounting principles, or SAP. This method of accounting is more conservative than the one used for most businesses, known as generally accepted accounting principles, or GAAP. This more conservative accounting treatment is consistent with the states' protection of the public through regulation of this industry. In addition, insurance companies and their accountants must follow the rules of the National Association of Insurance Commissioners, known as the NAIC rules.
Insurance policies, or contracts, are sold for a particular amount of money, or a premium. Sometimes, an insurance company has to pay out for a claim more money than was received as a premium. In the course of its business, an insurance company depends upon an actuary or accountant to determine the statistical probability of this premium deficiency. In order to cover this possible future cost, insurance companies set aside a reserve amount of money. In accounting terms, this is known as a premium deficiency reserve, or PDR, which is booked on a balance sheet as a liability. A PDR is also sometimes referred to as a "loss contract reserve."
As soon as an insurance company determines a premium deficiency may exist, the insurance company is required under the applicable accounting principles to book a reserve amount of money to cover the anticipated liability. Once booked as a liability, a PDR is amortized over time to pay out claims as they accrue. The PDR should only be used for the reason for which the reserve fund was established, i.e. to pay future claims. If the claims which were anticipated do not ultimately materialize, or are actually less than predicted, then an insurance company may "take down" or "reverse" all or the remaining part of the PDR, placing those funds, which had been booked as a liability, back into the assets of the company. However, a PDR should only be reversed after an actuary or accountant determines the funds booked as the PDR will not be required to pay future health care costs.
Another type of reserve fund, different from a PDR, is a restructuring reserve. A restructuring reserve is a one-time charge to earnings designed to cover a different set of anticipated losses, namely, the anticipated costs of "restructuring" a company, whether by sale, merger, reorganization or adding/deleting a business unit. The restructuring reserve pays the costs anticipated with the restructuring event. After the restructuring event is completed, the restructuring reserve is taken down as a liability, or reversed on the balance sheet, and, if any funds are remaining, they are booked as an asset. It is not necessary for an accountant or actuary to make a determination or calculation before a restructuring reserve is reversed on the balance sheet. Instead, the facts that (1) the restructuring event has occurred and (2) funds remain in the company are sufficient for this amount to be re-characterized from a liability to an asset.
Evidence established Health Net at that time was the fourth largest public provider of healthcare services in the nation. As such, the company had its own internal auditors, accountants and finance department. After Dr. Hasan gave the order to wind down the plans, Health Net's financial personnel made projections of a wind down of the three HMOs and determined such a wind down would cost Health Net several million dollars.
Health Net retained Shattuck Hammond Partners ("SHP"), the investment banking division of the accounting firm, PriceWaterhouseCoopers ("PWC") to find a buyer and structure the sale. Eric Coburn ("Coburn"), an investment banker, was SHP's primary contact with Health Net. Coburn worked with several members of the senior management of Health Net in developing the sale strategy, specifically, Curtis Westen ("Westen"), Health Net senior vice-president, general counsel and secretary; Michael Jansen ("Jansen"), Health Net vice-president, assistant general counsel, assistant secretary and secretary of the three HMOs; Jay Gellert ("Gellert"), president of Health Net (and later CEO after Dr. Hasan retired in August of 1998), who served on the board of directors for each of the HMOs;
A buyer was eventually located in Thomas Lucksinger ("Lucksinger"). Lucksinger had served for six years as the president and CEO of NYL Care Health Plans of the Gulf Coast, Inc., the largest HMO in Texas, with over 450,000 members. Before that, Lucksinger practiced law for 20 years, specializing in health care law, and was a partner in the Texas law firm of Vinson & Elkins. He was licensed as a CPA in Texas. Additionally, Lucksinger served on an oversight committee with the
Lucksinger originally wanted Health Net to loan him the money to buy the three HMOs but Health Net declined that suggestion. Instead, the structure of the sale which Health Net insisted upon was developed by Health Net's senior management and SHP and involved Lucksinger incorporating a holding company to buy the HMOs. The sale strategy required Health Net to sell the HMOs to Lucksinger's new company in exchange for cash and a percentage of stock in the holding company.
On April 13, 1998, Lucksinger and other investors incorporated AmCareco, Inc. ("AmCareco"), a Delaware corporation, whose principle place of business was Texas, for the purpose of acquiring, operating and expanding the operations of the three HMOs at issue. Dr. M. Lee Pearce, an early investor in the company, was shown on documents as initially controlling AmCareco. However, Lucksinger was the individual who negotiated the sale with Health Net from the earliest discussions. The New York law firm of Proskauer Rose incorporated AmCareco and was retained by AmCareco to draft the sale documents, particularly partner Stuart Rosow. Lucksinger's former law firm of Vinson & Elkins was retained by AmCareco to serve as regulatory counsel.
In developing a sale strategy, Health Net and SHP had to contend with some daunting realities. In the absence of a loan from Health Net, AmCareco had no real assets with which to purchase the HMOs. Since the HMOs were insurance companies and regulated by the states where they conducted business, the likelihood the state insurance regulators would approve the sale of already-distressed HMOs to a company with no assets and no history of operating success was slim.
The sale strategy which was developed by Health Net and SHP, agreed to by Lucksinger, implemented by documents drafted by Proskauer Rose attorneys, and guided through the regulatory process by Vinson & Elkins attorneys, addressed these realities. The unique structure of the sale was spread out over multiple documents.
The key to understanding the sale scheme that was developed is deceptively simple: after regulatory approval for the sale of the HMOs was obtained in all three states, the parties drafted a final sale document which re-characterized the PDR as a restructuring reserve. This sole action had the effect of increasing the assets of the HMOs as of the day before the sale, which allowed Health Net—under the expressly-approved sale terms—to take out more of the assets of the HMOs than the regulators believed would happen in the transaction. Thus stripped of their reserves, the HMOs were left in a shattered position from which they never recovered.
We will now examine, in chronological order, the documents prepared in connection with the sale of the HMOs at issue. As we discuss the relevant provisions in the documents, we will include comments to aid in understanding the strategy of the sale.
On April 17, 1998, AmCareco (through Dr. Pearce) and Health Net signed a Letter of Intent, memorializing the principal terms of a proposed acquisition by AmCareco of all of the outstanding stock of the three HMOs.
Attached to the Letter of Intent was a Term Sheet, also dated April 17, 1998.
An estimated calculation of the cash payment and adjusted book value (for use in determining the number and value of the shares of stock), as of February 28, 1998, was provided as Exhibit A to the Term Sheet. Important to note is the estimate, even at that early date, showing the cash sweep as $8.5 million. There is also a notation on the Term Sheet indicating $6.3 million in Restructuring Reserves would be reversed before the closing.
Other provisions of the Term Sheet described the stock rights Health Net would have in connection with the AmCareco Class A Preferred Shares, such as conversion and redemption rights, right of first refusal, and certain "put" rights.
On November 4, 1998, AmCareco and Health Net signed a Stock Purchase Agreement ("SPA").
Section 1 of the SPA set out the basic agreement between the parties. AmCareco would purchase from Health Net all of the outstanding shares of capital stock of each of the HMOs in exchange for (1) shares of convertible Class A Preferred Stock of AmCareco, with a set par value, in an amount to be determined pursuant to a formula in Section 2.2 of the SPA, and (2) a cash payment from the HMOs.
Section 2.1 of the SPA described how the amount of the cash payment from the HMOs, or cash sweep, would be determined. The formula provided in the SPA had the same general features as the one set forth in the Letter of Intent, including the determination of what constituted "excess"
There are some other important features of Section 2.1 which are critical to our analysis. Before the closing, all of the
Section 2.2 of the SPA discussed the issuance of the stock in AmCareco. Important to our consideration is the reiteration that generally accepted accounting principles would be consistently applied, except that "the Adjustments," i.e. the reversal of the non-cash restructuring and merger related liabilities and reserves, "shall be made." What this means is that sometimes accounting principles would be observed and in other instances they would not be. Testimony from Health Net's senior management indicated this document was not meant to be an accounting treatment, but a mechanism to arrive at a number for the cash sweep.
Section 2.3 of the SPA described the true-up which would take place one year after closing. Section 2.4 described the put and call rights between the parties with regard to the AmCareco stock, including the provision that, anytime after the third anniversary of the closing, Health Net had the right to "put," or sell back to AmCareco, all or a portion of its shares, and to require AmCareco to buy them back. To secure Health Net's "put" right, AmCareco was required to purchase a $2 million letter of credit at the closing.
Under Section 3.2 of the SPA, the parties agreed the outside date for the closing would be January 31, 1999.
Section 4.8 of the SPA, with regard to representations and warranties by Health Net, reiterated the HMOs would make the cash payment immediately before the closing.
The SPA reflected in Section 5.5 that AmCareco had no assets and no liabilities other than accrued expenses relating to the transactions contemplated by the SPA. Section 11.5 provided that the SPA constituted the entire agreement between the parties, "including the schedules and exhibits, and any other agreements entered into pursuant to this Agreement...." The SPA was signed by Curtis Westen, on behalf of Health Net, and Thomas Lucksinger, on behalf of AmCareco.
On the same day the SPA was signed, the parties signed a Side Letter, or letter agreement.
However, aside from these general provisions, the reason the Side Letter was necessary to the sale strategy was found in two of its provisions. In Section 5, the parties agreed, if one or more of the state regulatory authorities failed to approve all or part of the contemplated cash sweep from the HMOs, AmCareco would pay that amount of cash to Health Net, described as the "Sweep Shortfall." In that circumstance, the Adjusted Book Value to calculate the number of Class A shares would likewise be reduced by the amount of the Sweep Shortfall.
This provision introduced a certain amount of ambiguity into understanding the source of payment for the sale. If the regulators disliked the idea that the money for the sale came from the HMOs themselves, i.e. the object of the purchase was purchasing itself, the parties could point to this provision as showing the cash could, alternatively, come from AmCareco. The only problem with this alternative was that AmCareco did not have, and never had, sufficient money to be a viable alternative source for the Sweep Shortfall. In reality, whether the money for the cash sweep was taken directly from the HMOs, or from AmCareco under this provision, the cash was always being taken from the HMOs.
Section 6 of the Side Letter provided if the sale transaction did not take place on or before January 15, 1999, and Health Net had to infuse more capital to fund the PDR for fiscal year ("FY") 1998, then the parties agreed to negotiate in good faith a mechanism whereby Health Net was entitled to recover the additional cash contributed, but only to the extent that the additional cash related to periods after the Effective Time.
Although this provision seems straightforward, Section 6 actually introduced another level of ambiguity into understanding the terms of the sale. Because Health Net had the insurance contracts and its own actuaries and accountants, Health Net could determine whether it would have to infuse more cash into the HMOs to keep them in regulatory compliance if the date for the sale went beyond January 15, 1999. In fact, the figures necessary for the year-end accounting of the HMOs for the annual statement for FY 1998 would become available after the first of the year. Any capital infused by Health Net for the PDR made the HMOs compliant as of December 31, 1998, but would be amortized, or used, in 1999 and 2000. So on the one hand, the additional cash contributed was infused before the sale and made the HMOs compliant as of the end of the year in 1998. But on the other hand, the additional cash contributed in 1999 would be used to satisfy claims made after the Effective Time.
On December 2, 1998, AmCareco distributed a confidential Private Offering Memorandum ("POM") to potential investors.
In addition to the explanation of risks, the POM included a detailed description of how the proceeds from the sale of Class B stock would be used. Assuming the sale of all of the Class B Preferred Shares, and before deducting the offering expenses,
AmCareco stated the POM was being made for the purpose of raising this additional required equity.
To summarize, AmCareco projected its company needed an infusion of $22 million for its business plan to work, with a minimum of $8 million acquired by the closing. If the full amount was raised through the Class B stock sale, AmCareco intended to spend $2 million to acquire a data processing system, $750,000 in initial start-up costs, and $7 million in start-up losses of the HMOs. The remaining $12.25 million was estimated for additional capital for expansion and acquisitions.
The record shows us AmCareco barely met its baseline goal of acquiring the $8 million before the closing. Thereafter, AmCareco never raised another dime, except on two occasions when existing shareholders infused capital to acquire some additional business. AmCareco remained undercapitalized throughout its existence. Consequently, AmCareco was never able to act as an alternative source of funds for the purchase of the HMOs or to infuse capital into the HMOs to keep them in statutory and regulatory compliance.
AmCareco retained the Texas law firm of Vinson & Elkins as regulatory counsel.
The Form A's indicated the consideration AmCareco would provide to acquire the HMOs would be shares of its own company and cash.
As predicted by Health Net's auditors, both internal and external, Health Net was
Insurance regulators in all three states had questions about the proposed acquisition, which is unsurprising given the unique structure of the sale and the confusing documents. Both through written questions and in scheduled meetings with representatives from Health Net and AmCareco, the state insurance regulators sought to understand the terms of the change in ownership. All of the regulators were concerned with the feature of the sale whereby money would be removed from these historically-distressed HMOs.
In January 1999, the Texas regulators were told no money would be taken out of the Texas HMO in the cash sweep.
The Louisiana regulators were shown information at a meeting one week before the regulatory approval hearing which led those regulators to believe approximately $670,000 would be "swept" out of the Louisiana HMO. No one from Health Net or AmCareco disputed the Louisiana regulators' reading of the financial information which reached this conclusion. La-DOI informed the parties to the sale that the regulators were not comfortable with that high an amount being taken from the Louisiana HMO and requested a new calculation. In addition, and because the La-DOI was concerned about the financial health of the Louisiana HMO, the La-DOI conditioned its approval of the acquisition of the HMO by AmCareco on a minimum reserve requirement of $4 million remaining in the Louisiana HMO after the closing.
Late in the evening on April 29, 1999, one day before the approvals were scheduled
Two minutes later, at 8:53 p.m., Conway sent a letter to the Ok-DOH with the same attached financial schedule, indicating the closing transaction would consist of a cash infusion into the Oklahoma HMO by Health Net of $1,735,619 to cover the net intercompany receivables, offset by a cash sweep of $2,903,761.
Two minutes thereafter, at 8:55 p.m., Conway faxed a letter to Tx-DOI, with the same attached financial schedule, stating the closing transaction would consist of a cash infusion into the Texas HMO by Health Net of $2,435,109 to cover the net intercompany receivable, offset by a cash sweep of $2,920,123.
All of the regulators indicated they received and read Conway's letters and the financial schedule before the approvals were granted.
Approval by the state regulatory agencies was coordinated to occur on the same day. In an order dated April 30, 1999, the Texas Commissioner of Insurance issued findings of fact and conclusions of law which resulted in approval of the request for the change of ownership of the Texas HMO from Health Net to AmCareco.
On April 30, 1999, the Ok-DOH approved the acquisition of the Oklahoma HMO by AmCareco from Health Net.
Effective April 30, 1999, the members of senior management of Health Net who were also officers and/or directors of the HMOs, resigned their positions with the HMOs.
The approvals for the change of ownership were obtained on April 30, 1999, a Friday. On Monday, May 3, 1999, the cash sweep was accomplished through wire transfers. At that time, AmCareco did not have signatory power on any of the bank accounts of the HMOs, despite the fact the
Although Conway in her letters of April 29, and a document entered in evidence concerning the wire transfers indicated money was also supposed to flow from Health Net to the HMOs to settle intercompany accounts, testimony established no funds were ever noted on the accounting documents of the HMOs reflecting money as having been received in these transactions.
The minimum statutory capital and surplus requirement for Louisiana at that time was $2 million, with the additional regulatory requirement that the capital in the Louisiana HMO must be maintained at a minimum of $4 million.
Although the Closing Agreement includes the provision that the document "... is made as of the 30th day of April, 1999 ...", the parties to it agree that the Closing Agreement was actually signed by representatives from AmCareco and Health Net sometime between May 3 through 6, 1999.
This Closing Agreement, signed by the parties after regulatory approval was obtained for the acquisition of the three HMOs by AmCareco from Health Net, is the very first time that there was any indication that the parties intended to re-characterize the PDR as a Restructuring Reserve. Pursuant to this "re-characterization," the PDR had been added back into the assets of the HMOs without an independent auditor's report and without any event occurring which would have justified such a reversal. Although the parties claimed this reversal was reflected in the financial schedules prepared for the closing, such financial schedules were presented to the state regulators the night before approval was granted. Importantly, this significant and deal-altering feature was not pointed out to the regulators or highlighted. Moreover, there was not any indication on the financial schedule that this money was actually going to be withdrawn from the HMOs and was not some method of calculation only.
After the sale, the three HMOs continued to do business in their respective states. AmCareco managed the three HMOs through a management company newly-incorporated in Texas for that purpose and known as AmCare-Management, Inc. ("AmCare-Mgmt"). From the moment after the sale, the three HMOs had difficulties with cash flow. The HMOs were still losing money and Health Net had wiped out their reserves to pay future health care costs in the sale. AmCareco had to find a way to keep the HMOs in business and pay claims on an on-going basis.
Testimony established there are two sources of income in an insurance business to increase cash flow. The first source of income is the premium income from the sales of insurance policies. AmCareco aggressively pursued new books of business without regard to loss history. These new premiums were used to pay the claims of earlier members, and still more members were recruited to pay the claims of the new members. Each HMO contractually undertook to provide the health care for many thousands of citizens in their respective states, even though they were grossly undercapitalized and statutorily insolvent, and did not have the personnel, processes or computer systems capable of handling the new business.
The other source of income for an insurance company is derived from cashing out the investments of the companies. AmCareco did this; however, cash flow problems continued.
Over the next three and a half years, AmCareco covered up both its own insolvency and that of the HMOs by operating the three HMOs and AmCare-Mgmt in a coordinated, co-dependent and intertwined manner. The business entities transferred cash or marketable securities from one entity which had funds to another which needed funds. In place of the transferred money, the transferring entity would be
Expert testimony established this was not appropriate from an accounting standpoint, but AmCareco did not have sufficient capital to infuse cash into the HMOs as Health Net had always done. As claims came in, AmCareco had to use whatever capital remained in the HMOs to pay them, as well as the premiums from the new policies which were written. The reserves which had been set aside to pay the claims for the first 12-18 months of operations had been taken in the cash sweep.
AmCareco also created phony or bogus funds on the books of the HMOs. An account receivable would be booked as an admitted asset that was nothing more than an accounting entry, with no promissory notes, security agreement, board minutes or other standard documentation to evidence a bona fide and genuine debt between the entities. By mid-2000, almost one year after the sale, the HMOs began having trouble paying claims.
In order to disguise the worsening financial condition of the HMOs from the regulators, AmCareco moved the expenses and liabilities of the HMOs off of the HMOs' books and moved them onto the balance sheet of the management company and AmCareco. This practice artificially increased the assets of the HMOs and kept the true financial picture hidden from the regulators because neither the management company, nor AmCareco itself, were regulated businesses. Consequently, the regulators received the quarterly and annual financial statements of the HMOs, but did not see the other side of the transactions, which were placed on the financial statements of AmCareco and/or AmCare-Mgmt. AmCareco would book a "cashless contribution," basically only accounting entries without any documentation in support, from itself or AmCare-Mgmt to one of the HMOs to artificially balance the accounts of the HMOs. As time passed, the true imbalance of assets and liabilities grew.
In addition to the cash flow problem, AmCareco experienced problems with the claims adjudication system of the HMOs. Expert testimony described the "claims adjudication and payment processes [as] negligent to reckless to inconceivable."
PWC, the external auditor for AmCareco, AmCare-Mgmt and the HMOs, had to have seen the huge cash depletions that occurred the first business day after the sale, but did not mention those payments in its audit reports and did nothing to alert regulators to these cash depletions or to the statutory insolvency of the HMOs and
Although Health Net sold the HMOs to AmCareco, the sale did not end Health Net's involvement. Under the terms of the sale, the financial statements of the HMOs were provided to Health Net through 2000. Lucksinger testified he discussed major transactions with Westen and was guided in his business decisions by whether Westen seemed in favor of them or not. Lucksinger also claimed Health Net indicated it would fund potential transactions as they came forward. On two occasions, Lucksinger asked Health Net to provide financing for acquisitions of other businesses to help with the cash flow problems, and Health Net complied.
Lucksinger also claimed, when the HMOs were clearly in distress, Health Net "flat stated they were going to get it [the HMOs] funded up."
As the financial situation for the HMOs continued to worsen, Lucksinger turned to Health Net, and Westen, for relief. On May 11, 2001, Lucksinger sent an email to Westen informing him, and through Westen, Health Net, of the serious issue AmCareco was having with the state regulators. Copied on this email were Rosow from Proskauer Rose; Nazarenus, AmCareco's CFO; Mike Nadler, AmCareco's Chief Operating Officer; and Todd Lucksinger, AmCareco's counsel and Lucksinger's son. However, there is no indication that any other shareholder received this information at that time. Lucksinger warned the recipients of the email that state regulators were becoming increasingly concerned with the large amounts of the intercompany payables which the HMOs had on their books. In this email, Lucksinger provided Westen with financial information for a future scheduled telephone conference.
On August 17, 2001, Lucksinger sent to Westen and other investors a confidential email requesting an immediate infusion of cash and capital to continue the operations of the HMOs. Lucksinger explained each of the three HMOs was carrying large receivables from AmCareco on their books and this continuing problem of intercompany payables was coming to the attention of state regulators. Lucksinger wrote:
Lucksinger summarized investment opportunities to grow the HMOs and warned the investors AmCareco would have to cease operations without a capital infusion. In summary, Lucksinger wrote:
In response, Health Net in September 2001 undertook an investigation into the finances of AmCareco and the HMOs to find out the extent of their financial difficulties and to determine whether further investment of Health Net's capital was advantageous. AmCareco made a proposal which Health Net agreed to consider; ultimately, however, Health Net declined making a funding commitment. Instead, Health Net exercised its stock option as described in the SPA, and received the $2 million letter of credit purchased by AmCareco at the closing. Shortly thereafter, the insurance regulators in each of the three states where the HMOs did business took regulatory action. By the time the regulators took over the HMOs, the companies were insolvent by more than $60 million.
On September 23, 2002, the Louisiana Commissioner of Insurance ("Louisiana Commissioner") filed a petition in the 19th Judicial District Court seeking to have AmCare-La placed into rehabilitation and to have a receiver appointed, based on a determination by the Louisiana Commissioner that AmCare-La was financially troubled.
On December 16, 2002, the 200th District Court of Travis County, Texas placed AmCare-Tx and AmCare-Mgmt into receivership and appointed the Texas Insurance Commissioner as receiver. On December 23, 2002, the Texas Insurance Commissioner, as receiver, appointed Jean Johnson as the Special Deputy Receiver of each company ("Texas Receiver"). On January 21, 2003, the 200th District Court of Travis County, Texas placed AmCare-Tx and AmCare-Mgmt into permanent receivership.
AmCare-Ok's license to operate as an HMO in Oklahoma expired on April 30, 2002. Although AmCare-Ok filed an application with the Ok-DOH for renewal, AmCare-Ok and Ok-DOH entered into a Consent Order dated September 18, 2002, which limited AmCare-Ok's continued operation to the orderly conclusion of business, resolution of outstanding claims and winding down of the company. The Oklahoma HMO's renewal application was denied effective October 1, 2002, upon a finding by the Ok-DOH that AmCare-Ok was
On June 30, 2003, the Louisiana Commissioner, acting in his capacity as liquidator of AmCare-La, filed two lawsuits on its behalf in the 19th Judicial District Court. The first lawsuit, designated Docket Number 499,737, was brought against the officers and/or directors of AmCareco, AmCare-La and AmCare-Mgmt, and their insurers.
On September 30, 2003, the Louisiana Commissioner filed a third lawsuit as liquidator of AmCare-La, designated Docket Number 512,366 in the 19th Judicial District Court.
While these lawsuits were pending, the Oklahoma Receiver, on behalf of AmCare-Ok, and the Texas Receiver, on behalf of AmCare-Tx, sought, and were granted, leave to intervene in the two tort suits, Nos. 499,737 and 512,366.
That same day, the district court granted the Louisiana and Oklahoma Receivers provisional leave to file a joint "Consolidated, Amended and Restated" petition in Docket Number 499,737. This consolidated, amended and restated petition asserted claims for negligence, gross negligence, fraud, conspiracy, aiding and abetting, unjust enrichment, breach of fiduciary duty, unfair or deceptive acts or practices, violations of Louisiana and Texas law, as well as breach of contract. These two Receivers sought compensatory and punitive damages, as well as attorneys fees. Named as defendants in the consolidated, amended and restated action were Lucksinger; Nadler; Nazarenas; Michael K. Jhin; William F. Galtney; John P. Mudd; M. Lee Pearce; and Scott Westbrook (designated the "D & O" defendants, because they were directors and/or officers of AmCareco and/or its subsidiaries); Executive Risk Indemnity, Inc.; Executive Risk Specialty Insurance Company; Executive Risk Management Associates; Greenwich Insurance Company; and XL Specialty (designated the "insurer" defendants); Foundation Health Corporation; Foundation Health Systems, Inc.; and Health Net, Inc.; (designated the "Foundation/Health-Net" defendants); and PWC (the auditing/accounting firm for AmCare-La); Proskauer Rose, LLP (the law firm in New York); Stuart Rosow (a partner with the New York law firm Proskauer Rose) and AmCareco, Inc.
Also on October 15, 2004, the Texas Receiver filed "AmCare-Tx's First Supplemental and Amending Petition in Intervention" in Docket Number 499,737. In this supplemental and amending petition, the Texas Receiver likewise asserted causes of action for conspiracy, fraud, breach of fiduciary duty, negligence, negligent misrepresentation, unfair or deceptive acts or practices, and violations of Texas law. The Texas Receiver sought compensatory and exemplary damages and attorneys fees, and named as defendants most of the defendants named by the Oklahoma and Louisiana Receivers in the consolidated, amended and superceding petition.
The record reflects a multitude of pretrial filings, hearings and rulings, most of which are unnecessary for our review and which will not be discussed further. We note that all of the parties were represented
However, two of the pretrial rulings are important to the ultimate structure of the trial and require mention. First, after a hearing held on November 8, 2004, the district court granted the motion to consolidate filed by the three Receivers. Consequently, the two tort suits and the contract action were consolidated for trial.
Before trial began, all of the defendants except Health Net settled with the Receivers.
In a common trial, the district judge heard the claims of the Louisiana and Oklahoma Receivers, and a jury served as the fact finder for the claims of the Texas Receiver over an 11-day period on June 16-17, 20-24, and 27-30, 2005. At the conclusion of the trial, the district judge invited post-trial briefs, taking under advisement the claims of the Louisiana and Oklahoma Receivers. After its deliberations, the jury returned answers to special
The district court thereafter made the special verdict of the jury the judgment of the court.
On August 12, 2005, Health Net filed a motion for a judgment notwithstanding the verdict (JNOV), or alternatively, a new trial or a remittitur.
Health Net sought a suspensive appeal of the November 3, 2005 JNOV judgment and the district court's underlying August 2, 2005 judgment on the jury verdict.
On November 4, 2005, the district court rendered judgment on the claims of the Louisiana and Oklahoma Receivers, finding in their favor and against Health Net. In separate judgments for each HMO, the district court allocated fault in the same way as determined in the JNOV judgment, i.e. Health Net—70%, "Any other Person" —15%, and "Any other Company"— 15%. Specifically, the district court found Health Net breached fiduciary duties, committed fraud, made negligent misrepresentations, engaged in unfair or deceptive acts or practices, conspired, and acted with malice or gross negligence.
The district court determined the Oklahoma Receiver sustained compensatory damages of $24,426,005. After considering the allocation of fault, the district court awarded the Oklahoma HMO compensatory damages in the amount of $17,098,203.50, plus judicial interest from the date of judicial demand until paid. The district court determined the Louisiana Receiver sustained compensatory damages of $9,511,624.19. After considering the allocation of fault, the district court awarded the Louisiana HMO compensatory damages in the amount of $6,658,136.93, plus judicial interest from the date of judicial demand until paid.
Since Health Net had been found to engage in unfair or deceptive acts or practices, and in fraud, malice and gross negligence, the district court held the Louisiana and Oklahoma Receivers were entitled under Texas law to an award of reasonable attorneys fees, and an award of punitive damages or treble compensatory damages, to be determined at a subsequent trial. Finally, the district judge awarded the Receivers court costs, which would also be determined at a later date. These judgments were designated to be final appealable judgments.
On the contract claim asserted by the Louisiana HMO, the district court further determined that, independent of any fraudulent or otherwise tortious conduct, Health Net was contractually liable under its parental guarantee for the full amount of loss sustained by the Louisiana HMO, or $9,511,624.19, without reduction. The district court rendered judgment in favor of the Louisiana HMO, and against Health Net, in that amount, plus judicial interest from the date of judicial demand until paid on the contract claim.
Health Net sought suspensive appeals of the separate November 4, 2005 judgments in favor of the Louisiana HMO and the Oklahoma HMO.
Although the district court's judgment found that the Louisiana and Oklahoma Receivers were entitled to an award of reasonable attorneys fees, the district court postponed to a subsequent trial a determination of the amount of that award.
On December 21, 2005, the Oklahoma Receiver sought review of this decision, and filed a motion for new trial for re-argument and/or reconsideration regarding the district court's ruling as it concerned the attorney fee issue.
At the November 21-22, 2005 hearing, the district court also considered the quantum of punitive damages that should be awarded to the Louisiana and Oklahoma Receivers. In oral reasons, the district judge noted her understanding that all three Receivers had agreed to share in any recovery. Finding the amount of punitive damages awarded by the jury on the claims of the Texas Receiver to be sufficient exemplary damages for all of the claims raised, the district court denied awarding separate and additional punitive damages for the Louisiana and Oklahoma Receivers. In a written judgment signed on December 20, 2005, and designated a final judgment, the district court ruled in favor of Health Net, finding the Louisiana and Oklahoma Receivers had no right to separate and additional punitive damages.
The Louisiana and Oklahoma Receivers then filed a notice into the court record, indicating their election to receive, under Texas law, treble compensatory damages as an award against Health Net, based on the district court's November 4, 2005 judgments in their favor.
A panel of retired judges was appointed ad hoc to consider these appeals. During the pendency of these appeals, the court of appeal issued several opinions, some of which concerned issues not otherwise discussed herein.
On June 11, 2007, almost two years after the district court signed its written judgment adjudicating the claims of the Louisiana and Oklahoma Receivers on November 4, 2005, Health Net filed in the court of appeal a motion for remand. In part, this motion sought remand on the ground that the district court had failed or refused to provide written findings of fact and reasons for judgment pursuant to La. C.C.P. arts. 1812 and 1917. On July 10, 2007, the ad hoc panel granted the motion to remand, ordering the district court to supply written findings of fact and reasons for judgment, with citations to pertinent constitutional provisions, law and/or jurisprudence, and citations to the record, in support of its reasons and conclusions. The court of appeal additionally ordered the district court to address in its reasons fourteen (14) specific issues, and ordered this determination to be made in thirty (30) days.
On August 9, 2007, the district judge requested a ten-day extension of time, which was granted the same day. On August 17, 2007, the district court requested clarification with regard to the remand order, asking whether the district judge should convey her original reasons for granting the JNOV, or whether she should also consider her reasons adduced after reviewing all of the exhibits and evidence transmitted from the court of appeal upon limited remand. The court of appeal elected not to answer the district judge's query, instead denying her request with the notation that the court of appeal's remand order was "clear and unambiguous, and speaks for itself."
Thereafter, the district court complied with the ad hoc panel's remand order, issuing "Reasons for Judgment" on August 20, 2007, which were filed into the district court record on August 22, 2007. According to the court of appeal, a copy of the written "Reasons for Judgment" was supplied to that court on the same day. On August 28, 2007, the district court filed its "Reasons for Judgment, Part II," which supplemented the original reasons for judgment.
After another year and a half, the court of appeal issued its opinions on the main issues of liability. In Wooley I, its first ruling on the merits, the ad hoc panel separately determined the contract claim of the Louisiana Receiver.
In Wooley II, the ad hoc panel separately considered the tort causes of action in a 412-page decision with five appendices.
The Louisiana, Texas and Oklahoma Receivers filed four writ applications in this Court, seeking review of the court of appeal's determinations on the tort causes of action and the Louisiana contract claim. We granted these four writ applications, and consolidated them for review, in order to determine the correctness of the court of appeal's decisions.
In these consolidated cases, the appellate court was asked to review several final judgments. Finding errors of law which interdicted both the bench and jury findings of fact in the tort claims, the court of appeal conducted a de novo review of the record and reversed the judgments which had been entered in favor of the plaintiffs. The court of appeal, in a separate opinion, found no legal error in holding Health Net liable under the contractual cause of action, but amended the trial court's judgment to reduce the amount of the award. Based on its finding that Health Net was not liable on the tort causes of action, the court of appeal did not reach the merits of the correctness of the judgment notwithstanding the verdict, or the issues of punitive damages and attorneys fees. We will review the court of appeal's decisions under the following principles.
Rosell v. ESCO, 549 So.2d 840 (La.1989) explained this jurisprudential limitation of review power:
Id., 549 So.2d at at 844-45 (citations omitted).
The issue for a reviewing court to resolve when faced with a fact finding "is not whether the trier of fact was right or wrong, but whether the factfinder's conclusion was a reasonable one.... Even though an appellate court may feel its own evaluations and inferences are more reasonable than the factfinder's, reasonable evaluations of credibility and reasonable inferences of fact should not be disturbed upon review where conflict exists in the testimony." Stobart v. State through Dept. of Transp. and Development, 617 So.2d 880, 882 (La.1993). This review standard is based, in part, on the trial court's ability to better evaluate the testimony of live witnesses, compared with an appellate court's sole reliance upon a written record. In addition, the standard is based on "the proper allocation of trial and appellate functions between the respective courts." Stobart, 617 So.2d at 883, citing Canter v. Koehring Co., 283 So.2d 716 (La.1973), superceded by statute on other grounds as noted in Walls v. Am. Optical Corp., 98-0455 (La.9/8/99), 740 So.2d 1262, 1265. Consequently, "where two permissible views of the evidence exist, the factfinder's choice between them cannot be manifestly erroneous or clearly wrong." Id. As the court pointed out in Lasyone v. Kansas City Southern R.R., 2000-2628 p. 6 (La.4/3/01), 786 So.2d 682, 687-688, "[t]hese standards for manifest error review are not new. They are the guiding principles that aid our courts of appeal, which are our error correcting courts, when reviewing a trial court's factual determinations."
Considering together the standards of review for legal and factual issues, Stobart succinctly stated: "[t]his state's appellate review standard, which is constitutionally based and jurisprudentially driven, is that a court of appeal may not overturn a judgment of a trial court absent an error of law or a factual finding which is manifestly erroneous or clearly wrong." Id., 617 So.2d at 882 n. 2. However, when an appellate court finds that a reversible error of law or manifest error of material fact was made in the trial court, it is required, whenever the state of the record on appeal so allows, to redetermine the facts de novo from the entire record and render a judgment on the merits. Ferrell, 1994-1252 p. 4, 650 So.2d at 745. With these principles firmly in mind, we will examine separately the court of appeal's review of the verdicts of each fact finder on the tort claims, as well as the trial judge's determination of the contractual matter.
We begin this discussion by noting the writ application seeking review of the court of appeal's judgment regarding the contractual guarantee was filed by the Louisiana Receiver, and not Health Net. The trial court found Health Net liable under the parental guarantee and the holding was affirmed by the appellate court. Since Health Net has failed to seek review of that ruling, the issue of Health Net's liability under the contract is not before us. The only issue we must consider with regard to the parental guarantee is the amount for which Health Net is liable under its terms.
In order to understand the lower courts' holdings on this matter, it is necessary to focus on some additional facts. As
The guarantee was signed by Jeffrey L. Elder, the Chief Financial Officer of Foundation at that time. A notarized acknowledgment dated December 9, 1996 was attached to the guarantee and certified that Elder executed the guarantee.
After Foundation's 1997 acquisition by Health System International, the La-DOI requested that the resulting entity—Foundation Health Systems, Inc.—agree to provide a parental guarantee with some additional conditions. The La-DOI wanted the new parent entity to agree to guarantee the statutory net worth requirements of the Louisiana HMO for as long as the Louisiana HMO was a subsidiary of Foundation Health Systems, Inc., or until the HMO dissolved, whichever occurred first. The La-DOI additionally requested the inclusion of language in the document stating the guarantee could not be cancelled by any party without the approval of the Louisiana Insurance Commissioner.
By letter dated July 24, 1997, the Louisiana HMO responded to the La-DOI, rejecting the requested changes to the terms of the guarantee and its method of termination.
Eventually, the Foundation parent entity became known as Health Net. In 1999, pursuant to the terms of the sale documents at issue, Health Net transferred all of its stock in the Louisiana HMO to AmCareco. After the sale, AmCareco became
After AmCare-La was placed in rehabilitation on September 23, 2002, the Louisiana Commissioner and Receiver filed suit against all of the former parent entities of the Louisiana HMO, including Health Net, seeking enforcement of the guarantee. In defending against the contract suit, Health Net relied on Section 4.28 of the SPA, which stated all inter-company agreements and arrangements would terminate as of the closing, except those specifically named.
Trial was held after consolidation of the contract claim with the tort actions also filed by the Louisiana Receiver. On November 4, 2005, the district court rendered judgment in favor of the Louisiana HMO and against Health Net on the parental guarantee, finding Health Net to be contractually liable for the total amount of compensatory damages awarded to the Louisiana HMO in the amount of $9,511,624.19.
Health Net appealed all of the judgments rendered against it, including the district court's judgment finding Health Net contractually liable under the parental guarantee. In a separate opinion, which considered only the contractual claim, the appellate court affirmed the judgment of the district court holding Health Net contractually liable, but amended the judgment to reduce the amount of the award from $9,511,624.19 to $2 million plus legal interest thereon from the date of judicial demand until paid.
After rejecting Health Net's argument the parental guarantee was terminated during the sale of the Louisiana HMO to AmCareco, the court of appeal found the terms of the parental guarantee were clear and unambiguous, and Health Net was contractually obligated for the "minimum capital and surplus amount required by Louisiana law."
In doing so, the court of appeal rejected the district court's determination that Health Net was contractually liable for the entire amount of the compensatory damages suffered by AmCare-La, or any increased
The Louisiana Receiver argues in this court the clear language of the parental guarantee obligates Health Net to pay all capital and surplus obligations expected of a Louisiana HMO. The Louisiana Receiver claims this means the contract obligates Health Net to pay "the difference between admitted assets and liabilities at any given time plus an additional amount to keep [the] legally required cushion in place."
We disagree. The interpretation of a contract is the determination of the common intent of the parties. La. C.C. art. 2045. "When a contract can be construed from the four corners of the instrument without looking to extrinsic evidence, the question of contractual interpretation is answered as a matter of law." Sims v. Mulhearn Funeral Home, Inc., 2007-0054 p. 10 (La.5/22/07), 956 So.2d 583, 590; Louisiana Ins. Guar. Ass'n. v. Interstate Fire & Cas. Co., 1993-0911 p. 7 (La.1/14/94), 630 So.2d 759, 764 ("The determination of whether a contract is clear or ambiguous is a question of law."). The interpretation of this contractual guarantee is a question of law which we will review de novo.
Contracts of guaranty or suretyship are subject to the same rules of interpretation as contracts in general. Ferrell v. South Central Bell Telephone Co., 403 So.2d 698, 700 (La.1981). Accordingly, "[w]hen the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent." La. C.C. art. 2046.
By the clear and unambiguous terms of the contract, the court of appeal found Foundation agreed to provide sufficient capital to ensure the Louisiana HMO maintained the minimum amounts of capital and surplus required for an HMO under Louisiana law. The court of appeal also found, at the time Foundation signed the guarantee in 1996, the minimum capital and surplus amount required under Louisiana law for an HMO like the Louisiana HMO at issue here was $2 million. We agree.
Former La. R.S. 22:2010, now La. R.S. 22:254, is entitled "Protection against
Thus, the minimum capital and surplus amount which Foundation agreed to ensure on behalf of the Louisiana HMO in 1996 was $2 million.
Like the court of appeal, we reject the Louisiana Receiver's arguments that the guarantee obligates Health Net to pay any greater amount. The guarantee at issue is not ambiguous and should be enforced as written. "When the language of [a contract] is clear, courts lack the authority to change or alter its terms under the guise of interpretation." Louisiana Ins. Guar. Ass'n, 1993-0911 p. 7, 630 So.2d at 764. There would be no need for language in the guarantee obligating Health Net to pay the "minimum" financial requirements if the intent of the parties was for the guarantor to pay all of the HMO's liabilities. Consequently, the Louisiana Receiver's argument that Health Net is liable for the entire amount of the compensatory damages proved in this matter fails to give effect to the clear terms of the agreement.
Similarly, we find no merit in the Louisiana Receiver's alternative arguments. The Louisiana Receiver alternatively contends Health Net is obligated to pay $4 million, because that is the amount the Louisiana Commissioner required as the minimum capital and surplus for the Louisiana HMO following the Health Net/AmCareco sale. In the further alternative, the Louisiana Receiver contends Health Net should pay $3 million, arguing the $1 million deposit required by former La. R.S. 22:2010(A), now La. R.S. 22:254(A) should be considered as a part of the minimum capital and surplus requirements.
We find, as did the court of appeal, the clear and unambiguous language of the guarantee contractually obligates Health Net to pay the minimum capital and surplus amount of $2 million, required in former La. R.S. 22:2010(C), now La. R.S. 22:254(C).
The appellate court found the district court committed prejudicial legal error in the following ways which interdicted the district court's findings of fact on the tort claims asserted by the Louisiana and Oklahoma Receivers, justifying de novo review of the record: (1) the district court erroneously applied Texas law to decide the claims of the Louisiana and Oklahoma Receivers; (2) the district court failed to comply sufficiently with the court of appeal's remand order to supply reasons for judgment; and (3) the district court may have used erroneous Texas law when she decided the claims of the Louisiana and Oklahoma Receivers.
In this court, the Louisiana and Oklahoma Receivers assert the court of appeal erred both in raising the choice-of-law issue sua sponte and in conducting an erroneous choice-of-law analysis which prejudiced them. The Louisiana and Oklahoma Receivers further contend the appellate court erred in conducting its de novo review. We will now determine the merits of each of these contentions.
On October 14, 2004, the Louisiana and Oklahoma Receivers filed a joint motion in limine seeking the district court's ruling on the choice of law for the substantive issues raised. All of the parties provided the district court with extensive briefing on the matter in an issue-by-issue analysis. A contradictory hearing was held on May 9, 2005, after which the district court ruled Texas law would apply to the substantive tort issues raised, and Louisiana law would apply to procedural issues. The comments made by the district court judge at the time of her ruling show the ruling was based on her appreciation of the Receivers' allegations of fraud, negligence, unfair
Health Net did not seek review of this ruling by writ and did not raise this issue as an assignment of error in its appeal. The appellate court noted the parties' acceptance of the district court's pretrial determination regarding the choice of law.
After an extensive discussion of Louisiana's choice of law rules for torts, the court of appeal ruled the district court erred in part in her choice of law decision. The ad hoc panel maintained Texas law should have governed the tort claims of the Texas Receiver; Louisiana law should have governed the tort claims of the Louisiana Receiver; and Oklahoma law should have governed the tort claims of the Oklahoma Receiver. As a consequence of this determination, the court of appeal thereafter found the district court committed reversible error in applying Texas law to certain of the claims of the Louisiana and Oklahoma Receivers.
At the outset, we note the absence of an assignment of error or lack of objection to the district court's choice of law ruling by a litigant would not prevent the court of appeal from raising this issue. Without doubt, an appellate court has the authority to raise an issue sua sponte on appeal. The state constitution authorizes the appellate jurisdiction of a court of appeal in civil matters to extend to law and facts. La. Const. art. 5, § 10(A) and (B). La. C.C.P. art. 2129 specifically provides:
This court has held, on the basis of this constitutional and codal authority, that an "appellate court clearly had the authority to consider [an issue] even though there was no assignment of error in that regard." Nicholas v. Allstate Ins. Co., 1999-2522 p.7-8 (La.8/31/00), 765 So.2d 1017, 1023; see also Georgia Gulf Corp. v. Board of Ethics for Public Employees, 96-1907 p. 5-6 (La.5/9/97), 694 So.2d 173, 176. Under the law, the court of appeal had the authority to raise an issue on appeal sua sponte. Since the law clearly authorizes the court of appeal to consider an issue on appeal in the absence of an assignment of error, the question then becomes whether a re-examination of the district court's choice of law ruling was required in the interests of justice in this case.
We note the court of appeal failed to articulate why it addressed the uncontested choice of law issue in the first place, or how the application of Texas law to the claims of the Louisiana and Oklahoma Receivers was unjust. While the court of appeal appears to base its re-examination of the choice of law decision on the importance and uniqueness of the insurance laws of each state, that general observation is insufficient to justify a wholesale judicial intrusion into this pretrial legal ruling. Otherwise, the mere fact an insurance matter is involved in litigation involving actors from different states would lead to appellate courts second-guessing each pretrial legal ruling made, even in the absence of objection or prejudice.
Insurance is a highly regulated industry primarily because of the enormous public policy considerations at issue and the fact that insurance entities are entrusted with other people's money. These concerns require each state to regulate the insurance industry closely; consequently, heightened regulation is not a unique aspect in any one state. Here, what was at issue was a sophisticated and complex business transaction, where the objects of the sale were highly-regulated HMOs, and where the Receivers asserted the sale of the HMOs was accomplished through tortious means of conspiracy, fraud, unfair practices, and breaches of fiduciary duty. Thus, the fact that each state has its own laws for the regulation of the insurance industry, or regarding HMOs in particular—both grounds relied on by the court of appeal for justification of its judicial intervention in the choice of law decision—are, for the most part, irrelevant here.
To the extent the court of appeal relied on La. C.E. art. 202 as additional justification for its decision to revisit the district court's choice of law determination, such reliance was misplaced.
Even had there been justification for the court of appeal's re-determination of the choice of law decision, the appellate court committed error in failing to give the litigants notice of its sua sponte determination or to provide the litigants with an opportunity to be heard on the issue during the approximately 30 months the court of appeal reviewed the case.
The court of appeal's failure to provide notice to the parties was especially egregious
Our review of the record convinces us there was no error in the district court's ruling that Texas law applied to each of the three Receivers' tort claims. This case has contacts with several states, raising questions as to which states' law should apply to the tort claims asserted in the Receivers' petitions. As to many of the substantive legal issues, the law of all of the involved states is substantially similar, as acknowledged by the court of appeal. We also find, as did the district court, that the most important choice of law issues raised here related to the standards of conduct and the statutory duties and remedies imposed by the states on those in the business of insurance; the nature and scope of fiduciary duties; and whether punitive damages and attorneys fees may be awarded. We will briefly examine each of these issues.
La. C.C. art. 3542 provides the general rule for choice of law determinations in tort cases:
The underlying facts, as alleged at the hearing on the choice of law and at trial show the State of Texas has the most significant contacts with the parties in this matter. Although AmCareco is a corporation incorporated in Delaware, its principal place of business is in Texas. AmCareco was the owner of the four relevant subsidiary
The majority of the tortious conduct asserted against the defendants, including Health Net, as described in the Receivers' petitions and shown at trial, occurred in Texas. The district court specifically found the genesis of all of the intertwined tortious conduct occurred in Texas. The court of appeal acknowledged this fact repeatedly. See Wooley II, p. 40, 14 So.3d at 354 ("A substantial majority of the conduct [of which the plaintiffs complain] occurred in Texas.") and Wooley II, p. 51, 14 So.3d at 362 ("The record on appeal shows that a majority of the conduct complained of occurred in Texas and, based on the quantum of the damages awarded, sixty-one percent (61%) of the total injuries in this litigation occurred in Texas.") and Wooley II, p. 53, 14 So.3d at 363 ("For the purposes of Article 3543, the majority of the conduct that caused the injury in Louisiana occurred in Texas.").
The tortious conduct of the defendant had consequences and caused injury in Louisiana, Oklahoma and Texas; however, the most severe harm, in terms of the number of policy holders injured and dollar amounts of damage, occurred in Texas. Considering all of these facts, there was no error in the district court's finding that Texas had the most significant contacts under the general rule of La. C.C. art. 3542 and its policies would be the most seriously impaired if its laws were not applied.
The law applicable to standards of conduct and safety in a delictual action is determined by application of La. C.C. art. 3543:
Here, the tortious conduct occurred primarily in Texas, but injuries occurred in all three affected states. Under the first paragraph of Art. 3543, the tort law of Texas applies to all standards of conduct and safety, unless Louisiana law or Oklahoma law supplies a higher standard of conduct than Texas law does. We find no error in the district court's determination
Finally, La. C.C. art. 3546 provides the standard for determining when the remedy of punitive damages may be imposed:
This article points squarely toward the applicability of Texas law: Texas was the state where the majority of the tortious conduct occurred and where most of the damage was inflicted. Here, due to the intertwined nature of the tortious acts alleged, the operative facts relating to Health Net's conduct are common to all of the claims asserted by the three Receivers. We find no error in the district court's determination that all of the victims of the same scheme should share the same remedy, no matter where they reside. Moreover, to hold Health Net responsible for punitive damages does not somehow deny the insurance regulatory agencies in Louisiana and Oklahoma the authority to regulate insurance in their states.
Considering the unique facts of this case, we find the district court did not err in its determination that Texas law applied to all of the tort claims. We hold the court of appeal erroneously concluded the district court erred in its choice of law ruling. Consequently, the ad hoc panel's subsequent rulings based on that conclusion were in error, as well; specifically: (1) the district court erred in using "proximate cause" in its analysis of the tort claims of the Louisiana Receiver;
Even if the district court was wrong to apply Texas law to the claims of the Louisiana and Oklahoma Receivers, the ad hoc panel should have reviewed the error from an appellate perspective to determine whether the error affected the ultimate judgment as to applicable remedies. From an appellate perspective, the district court's application of Texas law to the claims of the Louisiana and Oklahoma Receivers had no effect as to the applicable remedies because no punitive damages or attorneys fees were awarded to the Louisiana or Oklahoma Receivers. Only the jury applying Texas law to the claims of the Texas Receiver, which the court of appeal conceded was correct, resulted in an award of punitive damages. The Texas Receiver did not seek attorney fees.
The record shows the trial of these matters was held on June 16-17, 20-24, and 27-30, 2005. Immediately after trial, the district court took under advisement the claims of the Louisiana and Oklahoma Receivers. The district court issued its judgment on these claims in separate judgments signed on November 4, 2005, finding Health Net liable on all of the tort causes of action.
The record also shows Health Net filed a motion seeking written reasons for judgment and findings of fact on July 26, 2005, before a final judgment was rendered, and on November 10, 2005, six days after the final judgment was rendered on these matters. Neither of these motions was accompanied by an order.
Thereafter, Health Net took a suspensive appeal on December 6, 2005;
On June 11,
Pursuant to a request by the district judge, the court of appeal granted a ten-day extension of time to comply with the court of appeal's remand order.
We note at this juncture the court of appeal correctly determined a timely request for written reasons for judgment and findings of fact had been made by Health Net. By the clear and unambiguous terms of the codal article, a request for written reasons pursuant to La. C.C.P. art. 1917 is timely, "provided the request is made not later than ten days after the mailing of the notice of the signing of the judgment." Consequently, Health Net's first request for written reasons, filed July 26, 2005, before final judgment was rendered, was not premature. Health Net's second request for written reasons, filed November 10, 2005, was filed within the time limitation provided by the codal article. In addition, the record shows the district court was not divested of jurisdiction at that time under La. C.C.P. art. 2088.
We note also the court of appeal correctly remanded the matter to the district court to obtain the district court's written reasons and findings of fact. The courts of appeal are in agreement the proper remedy for a trial court's failure to provide written reasons for judgment, when a timely written request to provide reasons has been filed, is by writ or a motion for remand.
While the court of appeal employed the proper procedure to obtain the district court's written reasons for judgment and findings of fact, we find, under the facts of this case, the scope of the appellate court's remand order was unrealistic, at best, and at the worst, abusive. We base this conclusion on considerations of the proper scope of a limited remand for written reasons and fact findings, the passage of time, the considerable complexity of the issues in this matter, the brevity of the time allowed, and the extensiveness of the record.
The remand order requested reasons for fourteen (14) specific issues. For each issue, the court of appeal specifically requested the supporting factual findings, including citations to pages in the record, and pertinent constitutional provisions, law and/or jurisprudence that controlled.
In this case, we find the passage of time, complexity of the issues involved, brevity of the time for remand, and extensiveness of the record could not help but combine to affect the district court's ability to comply with the remand order. In her Reasons for Judgment, the district judge acknowledged the herculean task assigned to her and her efforts to comply with the court of appeal's requests within the time allowed:
To put the district court's task into perspective, the appellate panel took approximately two and a half years and 413 pages (on the tort issues) and 13 pages (on the contractual issue) to do what it ordered the district judge to do in 40 days. We know from our own familiarity with this extensive record, and the complexity of the issues presented, the task set by the court of appeal in its remand order was unrealistic at best.
The appellate panel failed to take into account the considerations described here or to view the district court's written reasons "in that context and under those constraints."
When the district court failed to provide written reasons for judgment despite a timely filed motion requesting written reasons, the court of appeal properly ordered the district court to provide its reasons. Having obtained the district court's reasons, the court of appeal was entitled to use those reasons to gain insight into the district court's judgment. Although the written reasons may, or may not, have been helpful in that regard, the job of the appellate court was to review the district court's judgment, not its reasons for judgment. We find the court of appeal in this case improperly based its decision to conduct a de novo review of the record on the district court's belated written reasons for judgment instead of reviewing the district court's judgment.
The appellate court found error in the jury instructions provided by the district judge to the jurors who were the finders of fact on the tort claims of the Texas Receiver. As previously stated, the appellate court also found the district court's written reasons for judgment failed to provide the constitutional or jurisprudential bases for its decision. Based on these two findings, the appellate panel found it reasonable to infer that the district judge used the same Texas law which the ad hoc panel found erroneous in the jury instructions to make her decisions on the claims of the Louisiana and Oklahoma Receivers. Specifically, the court of appeal concluded the factual conclusions of the district judge on the issues of fiduciary duty and fraud were interdicted, necessitating de novo review.
After reviewing the three grounds which the court of appeal relied upon for its de novo review with regard to the district judge's judgment, we find no support in the law or the record for the court of appeal's determination that the tort claims of the Louisiana and Oklahoma should be reviewed de novo. In this regard, the holding of the court of appeal is reversed.
The tort claims of the Texas Receiver were tried to a jury and the jury found in favor of the Texas Receiver on all of the tort causes of action. The jury assessed Health Net's fault as 85% of the damages suffered, and awarded both compensatory
After review of the entirety of the jury charge, the court of appeal concluded: "(1) the charges did not adequately provide correct principles of law as applied to the issues framed in the pleadings and the evidence, (2) the jury was not adequately guided in its deliberations, and (3) the jury instructions misled the jury to the extent that it was prevented from properly dispensing justice."
A determination of the correctness of the court of appeal's conclusion requires additional facts. The Case Management Order ("CMO") for the trial was orally amended several times as the parties were granted continuances. Throughout, the district judge urged the parties to work together to come to some agreement regarding the content and form of both the jury instructions and the interrogatories which would be submitted to the jury. However, the parties were unable to do so, until, with trial scheduled to begin on June 16, 2005, the district judge ordered both parties to submit written jury instructions which would be discussed on June 14, 2005. Health Net submitted 102 proposed special jury instructions on June 15, 2005 and thereafter supplemented this filing. The Texas Receiver submitted 23 proposed jury instructions.
The district court informed counsel, before closing argument, of the interrogatories which would be submitted to the jury at the conclusion of the trial. However, the district judge did not tell counsel, before closing arguments, the content of the jury instructions which would be given. The district judge stated both sides had been tardy in filing their proposed instructions, but all proposed instructions had been considered in developing the jury charges. After the jury was charged and dismissed to begin its deliberations, Health Net placed specific objections on the record to some of the charges given and objections to the district court's failure to use certain of its proposed instructions. The Texas Receiver objected to the absence of one proposed charge.
La. C.C.P. art. 1792(B) requires a district judge to instruct the jury on the law applicable to the cause submitted to them. "The trial court is responsible for reducing the possibility of confusing the jury and may exercise the right to decide what law is applicable and what law the trial court deems inappropriate." Adams v. Rhodia, Inc., 2007-2110 p. 5-6 (La.5/21/08), 983 So.2d 798, 804. Considering
Adams, 2007-2110 p. 6, 983 So.2d at 804.
Generally, "the giving of an allegedly erroneous jury instruction will not constitute grounds for reversal unless the instruction is erroneous and the complaining party has been injured or prejudiced thereby." Rosell, 549 So.2d at 849. In fact, Louisiana jurisprudence is well established that a reviewing court must exercise great restraint before it reverses a jury verdict due to an erroneous jury instruction. Adams, 2007-2110 p. 6, 983 So.2d at 804; Nicholas, 1999-2522 p.8, 765 So.2d at 1023. We have previously explained the following basis for this rule of law:
Adams, 2007-2110 p. 6, 983 So.2d at 804; see also Nicholas, 1999-2522 p. 8, 765 So.2d at 1023. When a reviewing court finds the jury was erroneously instructed and the error probably contributed to the verdict, an appellate court must set aside the verdict. Adams, 2007-2110 p. 6, 983 So.2d at 804; Nicholas, 1999-2522 p. 8, 765 So.2d at 1023.
In order to determine whether an erroneous jury instruction was given, reviewing courts must assess the targeted portion of the instruction in the context of the entire jury charge "to determine if the charges adequately provide the correct principles of law as applied to the issues framed in the pleadings and the evidence and whether the charges adequately guided the jury in its determination." Adams, 2007-2110 p. 7, 983 So.2d at 804; Nicholas, 1999-2522 p. 8, 765 So.2d at 1023; Rosell, 549 So.2d at 849. The ultimate inquiry on appeal is whether the jury instructions misled the jury to such an extent that the jurors were prevented from dispensing justice. Adams, 2007-2110 p. 7, 983 So.2d at 804; Nicholas, 1999-2522 p.8, 765 So.2d at 1023.
The law is clear the review function is not complete once error is found. Prejudice to the complaining party cannot automatically be assumed from the mere fact of an error. Instead, the reviewing court must then compare the degree of the error with the adequacy of the jury instructions as a whole and the circumstances of the case. As we found in Adams:
Id., 2007-2110 p. 7-8, 983 So.2d at 805.
With this standard of review in mind, we examine the court of appeal's determination of prejudicial error.
The court of appeal first found the district judge committed prejudicial error in ruling the proposed jury instructions submitted by the parties were untimely under La. C.C.P. art. 1793(A).
The court of appeal found the district judge committed prejudicial error in failing
The district court held a charge conference outside of the jury's presence after the submission of all of the evidence to the jury, and discussed with counsel their proposed special interrogatories and objections thereto.
With regard to the codal requirements on jury instructions, however, the district court's actions fell short of compliance. The district judge informed counsel she would not use the entirety of the proposed jury instructions of either of the parties, although she had considered them. The district judge found the proposed instructions from both parties to be untimely and in some instances to contain incorrect statements of the law. While the district court told counsel generally the nature of the charge she would give, the district court ordered counsel to proceed with closing arguments without giving them an indication of the precise content of the final jury instructions.
This finding of error, however, does not end our analysis. Nor should the mere discovery of an error lead inexorably to the automatic conclusion the error was prejudicial and de novo review of the record is required. Instead, a reviewing court must take one further step and examine the nature of the error and the resulting prejudice to the complaining party within the specific circumstances of the case. Adams, 2007-2110 p. 8, 983 So.2d at 805; Rosell, 549 So.2d at 849.
Here, the error is not found within the jury instructions given, or the failure to give a certain instruction, but in the violation of a codal provision regarding the
We can conceive of three ways a party might be prejudiced in this circumstance. First, counsel would be unable to tailor closing arguments to conform to the jury instructions given by the court. We find no such prejudice was suffered by Health Net in this case. Despite the fact counsel did not know the specific contents of the court's ultimate instruction to the jury, counsel for Health Net delivered a comprehensive presentation of its case for the jury's consideration, comprising almost 30 pages of transcript in the record.
The other two ways prejudice could result from a litigant having to present closing arguments without knowledge of the contents of the jury instructions are: (1) counsel would not be permitted to object to the court's failure to include certain instructions in the charge, and (2) counsel would not be able to object to perceived errors in the instructions before the jury heard them. When objections to jury charges are considered before closing argument, and are found valid, a district court may avoid error by either including the valid but omitted instruction, or by amending the court's charge to exclude an erroneous charge.
In this case, counsel for Health Net placed objections on the record before the closing arguments, even in the absence of knowing what the court's precise charge would be. However, the district court interrupted these objections in order to proceed with the trial.
An analysis of the possible prejudice to Health Net in this regard necessarily involves an analysis of the appropriateness of the jury instructions as a whole, as to those instructions actually given and those urged by Health Net which the district court failed to include in the jury charge. The court of appeal found the district court's failure to provide instruction on three concepts, two raised by Health Net and one raised by the appellate panel sua sponte, was prejudicial error. The court of appeal additionally found prejudicial error in several of the jury instructions actually given. We will review these findings separately, as they were separately discussed by the court of appeal as additional findings of prejudicial error.
The court of appeal found the district court's failure to instruct the jury on these three legal issues constituted prejudicial error: (1) sham sale (raised by appellate panel); (2) single business entity; and (3) certain provisions of Texas law.
The court of appeal held: ". . . the factual issue of whether the Stock Purchase Agreement executed by Health Net and AmCareco on November 4, 1998 is a sham is one of the most important factual issues in this case."
This case presented two very different interpretations of essentially undisputed factual events and documents. But from both parties' perspective, ownership of the HMOs changed through a sale transaction. The Texas Receiver argued the facts and documents proved the sale was accomplished through conspiracy, breaches of fiduciary duty, fraud and deceptive practices. Health Net argued the facts proved normal business transactions. What the court of appeal missed was that the consummation of the sale of the HMOs was the object of the conspiracy alleged and the reason, or goal, for which the alleged fraud, deceptive practices and breaches of duty occurred.
In context, the concept of the sale being a "sham" was used in the illustrative sense in a brief comment by one of the Receivers' expert witnesses in order to underscore the relative inequity of the sale transaction between Health Net and Am-Careco, and as evidence of the scheme by which Health Net divested itself of ownership responsibilities while improperly siphoning out the money in the HMOs.
The court of appeal's erroneous focus on the non-issue of the sale's validity led the appellate panel into further error which must be mentioned here. The court of appeal unnecessarily found the validity of the unchallenged Stock Purchase Agreement was "critical to determining the obligations of the parties."
To confect this alleged error regarding "sham sale," the court of appeal claimed to rely on several of Health Net's proposed instructions and an appellate assignment of error. However, our review shows the appellate court's reliance is misplaced. None of these stated sources legitimately raise this concept as an issue. Nor do we find the evidence adduced at trial fairly raised this concept as a factual issue which would necessitate a legal instruction. Thus, we find no error in the district court's failure to instruct the jury on the concept of a "sham sale."
On appeal, Health Net argued the district court failed to instruct the jurors they could consider the three HMOs and their parent, AmCareco, to be a "single business enterprise" ("SBE"). This, Health Net contends, would have allowed the jurors to consider the assets of AmCareco as part of the assets of the HMOs and would have led the jurors to conclude the HMOs were not out of statutory and regulatory compliance after the sale. From there, Health Net asserts there would have been insufficient evidence to support a jury finding of Health Net causing any damage to the HMOs through the sale.
The court of appeal agreed, finding the existence or absence of an SBE instruction to be relevant in connection with the concept of the sham sale. The court of appeal framed the trial issues, which may have been impacted by an SBE instruction, in the following manner:
After an extensive discussion of the SBE doctrine under Texas law, the court of appeal concluded there was sufficient evidence presented at trial to require a jury instruction on this issue.
We must again point out the failure of the court of appeal to complete its appellate analysis. Finding there was sufficient evidence to necessitate an instruction on disregarding the corporate form, the court of appeal concluded the district court's failure to so instruct was an error. Without
We find it necessary to correct the appellate court's appreciation of the law with regard to prejudicial error. Even assuming the district court erred in failing to give an instruction, the mere discovery of an error does not, of itself, automatically equate with prejudice, nor does the mere discovery of an error justify an appellate court's de novo review. Instead, to complete the analysis on appellate review, an appellate court must measure the gravity or degree of the error, and consider the entire instructions and the circumstances of the case. Adams, 2007-2110 p. 7-8, 983 So.2d at 805.
In this court, the Texas Receiver points out Texas law does not recognize the doctrine of SBE, and asserts none of its claims assert a cause of action which depends upon the jury ignoring the corporate form, and treating any one company as a mere alter ego of another, or treating any group of companies as a unit. Health Net disputes this contention, arguing each of the Texas Receiver's claims seek, in part, to impose liability on Health Net based on its status as a controlling shareholder in AmCareco after the sale of the HMOs. Thus, Health Net claims, proper instruction on the SBE doctrine was essential for the jury to properly address this aspect of the Texas Receiver's claims.
Technically, there is no SBE doctrine under Texas law; the Texas Supreme Court explicitly stated its rejection of the doctrine one month before the court of appeal handed down its opinion in this case. See SSP Partners v. Gladstrong Investments (USA) Corporation, 275 S.W.3d 444, 456 (Tex.2008). The fact Texas law had never endorsed the SBE doctrine was correctly pointed out in the cases analyzed by the court below in its discussion,
Even under an expansive understanding of the requested charge, i.e. that some charge was requested with regard to when the existence of the corporate forms could be disregarded, we find the district court's failure to include such an instruction did not constitute prejudicial
Insofar as Health Net sought an SBE-type instruction to bolster its argument that the assets of AmCareco should have been considered in determining the statutory capital compliance of the HMOs immediately after the sale, we again find the requested instruction was properly refused by the district court. The expert testimony at trial was undisputed that the shifting of assets between and among the regulated insurance companies and the unregulated parent company and management company was contrary to the statutes and regulations in each of the states where the HMOs conducted business, as well as to the applicable accounting principles used to determine the statutory minimum capital requirements.
Health Net claimed on appeal the district judge erred in failing to instruct the jury on the statutory provisions of former Tex. Bus. Corp. Act art. 2.21. The court of appeal agreed.
Under Texas law, former Art. 2.21 "provide[d] the exclusive method for piercing the corporate veil in Texas." Kingston v. Helm, 82 S.W.3d 755, 764 (Tex.App.-Corpus Christi 2002). The very terms of the statute limited its application "to suits which attempt to impose individual liability on a corporate shareholder not on the basis of the shareholder's own actions, but rather on the basis of the shareholder's mere status as shareholder." Kingston, 82 S.W.3d at 765 (emphasis in original).
In this case, Health Net was the 100% shareholder and owner of the HMOs before their sale to AmCareco. After the sale of the HMOs, Health Net was a 47% shareholder in AmCareco, which owned 100% of the HMOs' shares. Thus, to hold Health Net responsible for its status as a shareholder, the Receivers would have to have sought to hold Health Net liable for the actions of the HMOs before the sale, and AmCareco after the sale. We will discuss the applicability of this statute to both situations.
For the time period before the sale of the HMOs, when Health Net was their 100% shareholder, we find the Receivers' sought to hold Health Net liable for tortious actions, not based on its status as a shareholder in the HMOs or for the actions of the HMOs themselves, but for its own actions. In fact, the HMOs were the alleged victims of the complained-of tortious conduct. Consequently, we hold this statute was inapplicable to the Receivers' claims against Health Net for the time period before the sale of the HMOs. The district court did not err in failing to instruct the jury of the statute's provisions in this regard.
For the time period after the sale, we are aware the Receivers' arguments focused on whether Health Net was a controlling shareholder in AmCareco, despite Health Net's minority ownership of AmCareco shares. However, to the extent the Receivers sought to hold Health Net liable as a shareholder in AmCareco for AmCareco's actions after the sale of the HMOs, we find no need to express an opinion. Since we find, infra, that there was sufficient evidence to support the factual finding of Health Net's liability for its own actions occurring before the sale of the HMOs, there is no need for this court to determine whether Health Net could have been additionally liable for its actions post-sale under its subsequent and separate status as a shareholder in AmCareco.
We hold that Health Net is not prejudiced by our decision to limit review of the jury instructions and their application to its pre-sale actions only. Considering the evidence, and as will be discussed further in other sections of this opinion, we do not believe the judge or jury could find Health Net liable for conspiracy and the substantive tortious conduct asserted against Health Net post-sale, without also finding Health Net liable for its own pre-sale actions. Thus, even if the district court should have included the provisions of this statute in its jury instructions for the Receivers' claims against Health Net post-sale, we hold any error in the district court's omission cannot rise to the level of prejudicial error under the circumstances of this case. See Adams, 2007-2110 p. 7-8, 983 So.2d at 805.
Although the court of appeal opinion also discussed, and found prejudicial
In this case, whether the mismanagement of AmCareco, the intervening acts raised by Health Net, was foreseeable or unforeseeable, we find the result would be the same. The intervention of an unforeseen cause of injury does not necessarily mean there is a new and independent cause, or superseding cause, that will relieve a defendant from liability. "If the chain of causation is continuous or unbroken, even an unforeseeable intervening cause may be a concurring cause of the injury. . . . An intervening cause that was set in motion by the original wrongdoer can never be deemed to supersede the original act." Rodriguez, 963 S.W.2d at 821 (citation omitted). Likewise, "if the act or omission alleged to have been a new and independent cause is reasonably foreseeable at the time of the defendant's alleged negligence, the new act or omission is a concurring cause as opposed to a superseding or new and independent cause." Hawley, 284 S.W.3d at 857. "A new and independent cause alters the natural sequence of events, produces results that would not otherwise have occurred, is an act or omission not brought into operation by the original wrongful act of the defendant, and operates entirely independently of the defendant's allegedly negligent act or omission." Id.
Here, we find the intervening acts raised by Health Net, i.e. the mismanagement of AmCareco, were not superseding in nature. The financiallydistressed conditions of the HMOs were created by Health Net's initial wrongdoing and continued to contribute to the resulting injuries to the HMOs. While the mismanagement of AmCareco may have been a "concurring" cause of the damages, it was not a "superseding" cause. Under these circumstances, the district court's causation instruction was broad enough to encompass the question of concurring causes or more than one proximate cause of the damages.
Finding no prejudicial error in the district court's failure to instruct the jury on the three legal concepts of sham sale, single business enterprise and the provisions of Tex. Bus. Corp. Act Ann. art. 2.21, or in failing to instruct the jury on superseding cause, we reverse the court of appeal's determination that these alleged errors justified de novo review of the record.
Health Net claimed error in all of the jury charges on the substantive claims.
Health Net argues it had no fiduciary duties to the HMOs either before or after the sale. The court of appeal ultimately agreed. In reaching its conclusion, the appellate court made several legal findings, some of which will be discussed in our own analysis of this issue.
The court of appeal undertook a lengthy analysis of the law to determine whether Health Net owed fiduciary duties as owner and shareholder of the HMOs before their sale, or as a shareholder in AmCareco after the sale of the HMOs.
After its examination of the common law, the appellate court reviewed statutory law. The court of appeal found a cause of action under Tex. Ins.Code § 843.401 was not preempted by Art. 2.21. However, the appellate court held the failure of the trial court to instruct the jury on the provisions of Art. 2.21 or Tex. Ins.Code § 843.401 was prejudicial error. We will examine that holding to determine its correctness.
Under Texas law, corporate officers and directors owe a strict fiduciary obligation to their corporation. International Bankers Life Insurance Company v. Holloway, 368 S.W.2d 567, 576 (Tex. 1963); Landon v. S & H Marketing Group, Inc., 82 S.W.3d 666, 672 (Tex.App.Eastland 2002). "Three broad duties stem from the fiduciary status of corporate officers and directors: namely the duties of obedience, loyalty, and due care." Landon, 82 S.W.3d at 672.
The trial court instructed the jury with this definition of a fiduciary duty:
In order to determine whether a fiduciary duty was owed by Health Net, it is important to focus on the precise corporate entities and the circumstances of this case.
Health Net, before the sale of the HMOs, was the parent corporation of the wholly-owned subsidiary HMOs. Several of the officers and directors of Health Net served as officers and directors of the HMOs. Jay Gellert, the Health Net CEO and president, was also on the board of directors of Health Net's three subsidiary HMOs. Michael Jansen, a Health Net vice-president, its assistant general counsel and assistant secretary, was also the secretary of the three HMOs. Brian Crary, Health Net's Chief Financial Officer ("CFO") for Health Net's Western Division, was also the CFO for the three HMOs.
In transactions between boards having common members, the burden is
For the time period before the sale, when Health Net was the owner and 100% shareholder of the HMOs, we find we are not constrained in our examination of tortious conduct to consider only actual fraud by operation of Tex. Bus. Corp. Act art. 2.21.
Health Net argued, and the court of appeal found, that Health Net, as the parent corporation, owed no fiduciary duties to its wholly-owned subsidiaries.
We find that the nature and extent of the fiduciary duty of a parent corporation
The immediate question which arises is whether the officers/directors of the subsidiary HMOs owed a fiduciary duty to the subsidiary corporation itself, or only to the parent corporation, the sole shareholder, in this parent/wholly-owned subsidiary relationship. All of the cases relied upon by the ad hoc panel are based on the reasoning found in Anadarko, supra. In Anadarko, the Delaware Supreme Court was asked to resolve "whether a corporate parent and directors of a wholly-owned subsidiary owe fiduciary duties to the prospective stockholders of the subsidiary after the parent declares its intention to spin-off the subsidiary."
The Anadarko ruling has been criticized as having been extended beyond its original intent. In First American Corp. v. Al-Nahyan, 17 F.Supp.2d 10, 26 (D.D.C. 1998), the federal district court restricted Anadarko's statement to its narrow factual confines and rejected an interpretation which would result in a subsidiary's directors owing no duties to the subsidiary itself.
Subsequent holdings by Delaware courts have proved the accuracy of this re-interpretation. In Cochran v. Stifel Financial Corp., 2000 WL 286722 (Del.Ch.2000), aff'd in part and rev' in part on other grounds, 809 A.2d 555 (Del.2002), the Delaware Chancery Court refused to find that an earlier arbitration action filed by a subsidiary corporation against one of its directors, which included a claim for breach of fiduciary duty, should be considered an action also filed by the parent corporation.
The Delaware Chancery court's analysis makes clear the subsidiary corporation had a claim for breach of fiduciary duties from one of its directors which was separate and distinct from a claim of its parent corporation. In Williams v. McGreevey (In re Touch America Holdings, Inc.), 401 B.R. 107, 129 (Bankr.D.Del.2009), the federal bankruptcy court in Delaware noted the rejection of an overly-broad reading of Anadarko by later courts and held "the directors of a wholly-owned subsidiary owe fiduciary duties to both the subsidiary and to the sole shareholder, the parent corporation." In Claybrook v. Morris (In re Scott Acquisition Corp.), 344 B.R. 283, 290 (Bankr.D.Del.2006), the federal bankruptcy court in Delaware also held that a director of a wholly-owned subsidiary owes fiduciary duties to the subsidiary corporation, even in insolvency. The only thing that changes in an insolvency situation is that the director will also owe a fiduciary duty to the subsidiary's creditors, instead of its shareholders.
In trying to discern what the Texas courts would hold with regard to this issue, we are stymied by the absence of a clear analysis in that jurisdiction. Our research shows the Texas Supreme Court has not yet weighed in on the Anadarko decision. Although federal district courts and bankruptcy
Considering the facts of this case, and in light of the subsequent interpretation of Anadarko by several courts, which limited its ruling to its facts, we believe the Texas court would hold a wholly-owned subsidiary's directors owe a fiduciary duty to the subsidiary corporation itself, as well as to the parent corporation which owns 100% of its shares. In making this determination, we are aided by language in Trenwick, supra, which relied on Anadarko, yet described a situation very similar to the one presented here. In Trenwick, the Delaware Chancery Court held a subsidiary corporation's board was "free to take action in aid of its parent's business strategy" "
Having found that a subsidiary's director/officer has a fiduciary duty to the subsidiary corporation itself, even if wholly-owned, which is separate from their fiduciary duty to the parent corporation, we must apply that rule to the pre-sale situation here. Directors and officers of Health Net, the parent corporation, were also directors and officers of the subsidiary HMOs. Health Net's senior management, which included the common directors/officers, participated in creating the scheme for divesting the subsidiary HMOs. Whatever the scope of the fiduciary duty owed by the HMOs' directors/officers to the subsidiary corporations under Texas law, we hold it would be broad enough to encompass the duty to refrain from involvement in a conspiracy or scheme to mislead regulators in connection with a sale of the subsidiary HMOs which would strip them of assets reserved to pay future health care costs and which would leave the HMOs unable to meet the statutory and regulatory requirements in order for them to continue to do business in their respective states. Consequently, the HMOs' directors/officers—Gellert, Jansen and Crary—breached their fiduciary duties to the subsidiary HMOs by not acting with the due care, trust and loyalty which their positions demanded. In helping to craft the strategy which swept out large amounts of the HMOs' assets and left them unable to meet their legal obligations, Gellert, Jansen and Crary acted on behalf of Health Net, because the HMOs were not parties to the sale.
Even if Health Net could not be found liable for a breach of fiduciary duty under the common law, the Texas Insurance Code provides for a specific fiduciary duty for those entrusted with the financial affairs of HMOs. Tex. Ins. Code Ann. § 843.401 states:
The court of appeal held this statute inapplicable as a means for finding Health Net vicariously liable for Gellert, as a director of the HMOs, and Jansen, as secretary of the HMOs, holding there was no evidence Gellert and Jansen engaged in the activities described in the statute.
After the sale of the HMOs to AmCareco, the directors and officers which were common to both the HMOs and Health Net were replaced. None of the new directors/officers of the HMOs were persons for whom Health Net could be held vicariously liable. Although there was testimony about Health Net's continuing involvement with AmCareco after the sale in an attempt to show Health Net was a controlling shareholder during that time period, we need not consider, as unnecessary, whether Health Net was additionally liable for a breach of fiduciary duties post-sale.
The court of appeal held the facts presented at trial regarding the breach of fiduciary duty required a more precise charge, with alternative interrogatories.
The jury was instructed regarding the definition of a fiduciary duty of a corporation's directors and officers. The jury heard the testimony regarding Gellert, Jansen and Crary, who were officers/directors of the HMOs, as well as senior management of Health Net, who acted on Health Net's behalf in devising the sale strategy which divested the HMOs. The jury heard what these persons did and could make a factual determination whether their actions rose to a breach of fiduciary duty. Finding a breach, the jury found Health Net liable for their actions on its behalf or as a participant in the conspiracy.
Health Net's complaint about the fraud charge presented to the jury arises in connection with its previous argument regarding the district judge's failure to instruct the jury as to the provisions of Tex. Bus. Corp. Act Art. 2.21. Under the provisions of the former Art. 2.21(A)(2), a shareholder could not be held liable for the actions of the corporation, or have the corporate veil "pierced," on the basis that (1) the shareholder is the alter ego of the corporation, or (2) fraud of some sort occurred, unless the plaintiff demonstrates the shareholder caused the corporation to be used to perpetrate, and did perpetrate, an actual fraud on the plaintiff primarily for the shareholder's direct personal benefit.
From these provisions of the former statute, Health Net argued that its liability for fraud was limited to proof of actual fraud for its own personal benefit. The ad hoc panel agreed, finding the jury instructions on this issue fatally flawed by the lack of an instruction on actual fraud. In addition, the appellate court found the district court failed to instruct on the elements of fraud by misrepresentation. Finally, the court of appeal found the district court failed to properly instruct on the element of fraud by omission, since the
As previously stated, the provisions of Art. 2.21 do not apply to Health Net's pre-sale actions since the Receivers did not seek to hold Health Net liable for its status as the sole shareholder of the HMOs, or for the HMOs' actions, but for its own actions during that time period.
Under Texas law, the traditional elements of fraud are:
Green Intern., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex.1997); see also Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex.2001). The district court's failure to include a jury charge on these traditional elements of fraud by misrepresentation was held to be error by the ad hoc panel. Yet, as found in Johnson v. Smith, 697 S.W.2d 625, 632 (Tex.App.-Houston 1985), "[m]isrepresentation, however, is not the only method through which fraud is practiced."
In addition to the traditional elements, Texas courts recognize that "not all fraud is comprehended within elements of the traditional test." McEwin v. Allstate Texas Lloyds, 118 S.W.3d 811, 816 (Tex. App.-Amarillo 2003). Indeed, Texas courts have held:
First State Bank of Miami v. Fatheree, 847 S.W.2d 391, 395 (Tex.App.-Amarillo 1993) (emphasis added). Fatheree further discussed the reasons why the definition of fraud cannot be limited to only one aspect:
The district court in the present case instructed the jury as follows:
In the first paragraph of the fraud charge, the district judge attempted to instruct the jury pursuant to Texas Pattern Jury Charge ("TPJC") 105.4 on the elements of fraud for the failure to disclose when there is a duty to disclose. Health Net referred to this charge as "fraud by omission" in its Requested Charge # 54.
This finding is bolstered by the fact the district judge correctly charged the jury with a fraud charge in the second paragraph. Consistent with Texas law, the district judge instructed the jury that fraud can incorporate ". . . the successful use of cunning, deception, or artifice to cheat another to their injury." See McEwin, 118 S.W.3d at 816. This charge, or one similar to it, has been used by Texas courts for decades, both in jury instructions and in the analysis of fraud claims, and is particularly appropriate when the fraud at issue does not neatly fit the elements of traditional fraud. See Western Reserve Life Assur. Co. of Ohio v. Graben, 233 S.W.3d 360, 376 (Tex.App.-Fort Worth 2007) (used in analysis of fraud claim); In re: Western Star Trucks US, Inc., 112 S.W.3d 756, 760 (Tex.App.-Eastland 2003) (used in jury instruction); McEwin, 118 S.W.3d at 816 (used in analysis of fraud claim); Fatheree, 847 S.W.2d at 396 (used in jury instruction); Johnson, 697 S.W.2d at 631-32 (Tex.App.-Houston 1985) (used in jury instruction); and International Life Ins. Co. v. Herbert, 334 S.W.2d 525, 530 (Tex.Civ.App.-Waco 1960) (used in analysis of fraud claim).
The first paragraph of the fraud instruction, while containing error, was not wholly erroneous, and had no detrimental effect on the correct second portion of the charge. We find the second paragraph of the fraud instruction given by the district court adequately provided the correct principles of law for the jury to apply to the issues framed in the pleadings and the evidence, and adequately guided the jury in its deliberations on this issue. Adams, 2007-2110 p. 7, 983 So.2d at 804; Nicholas, 1999-2522 p. 8, 765 So.2d at 1023; Rosell, 549 So.2d at 849. For the reasons previously stated, we hold the jurors were not limited to considering only evidence of actual fraud by Art. 2.21. Although there was error in the district court's fraud charge, we find the court of appeal erred in finding the charge to be fatally flawed.
The Receivers claimed Health Net engaged in unfair or deceptive acts or practices in violation of Art. 21.21 of the Texas Insurance Code.
Former Art. 21.21, recodified at Tex. Ins.Code § 541.003, prohibited any person engaged in the business of insurance from engaging in an unfair or deceptive act or practice. Section 3 of this statute provided: "[n]o person shall engage in this state in any trade practice which is defined in this Act as, or determined pursuant to this Act to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance." A "person" was defined by the statute as "any individual, corporation, association, partnership,. . . or other legal entity engaged in the business of insurance, including agents, brokers, adjusters, and life insurance counselors." Former Art. 21.21 § 2(a), recodified as Tex. Ins.Code § 541.002(2).
In their petitions, the Receivers alleged the defendants committed violations of Tex. Ins.Code Art. 21.21 § 4(1), § 4(2), § 4(5)(a) and (b), and § 4(11). These former sections of the Insurance Code raised allegations of "Misrepresentations and False Advertising of Policy Contracts,"
The court of appeal found the omission of the word "shareholder" from the definition of "person" under Art. 21.21 § 2(a) was an intentional exclusion. As Health Net was the 100% shareholder of the HMOs before the sale, and only a minority shareholder in their parent corporation after the sale, the court of appeal found Health Net was not a "person" as defined in the Texas Insurance Code in its capacity as a shareholder. In addition, the ad hoc panel found Health Net, as the owner and parent corporation of the HMOs before the sale, was not engaged in the business of insurance, and only the HMOs, as its subsidiary corporations, were. For these reasons, the court of appeal refused to consider the sufficiency of the evidence with regard to unfair or deceptive acts or practices which may have been committed by Health Net, finding Health Net could not be found liable under the provisions of the Texas Insurance Code as a matter of law.
To the contrary, we hold the omission of the word "shareholder" from the illustrative list of entities which constitute a "person" under Article 21.21 is not fatal to the Receivers' claims. The court of appeal erred in failing to liberally construe this definition such that the underlying purpose of the Texas Insurance Code provision would be effectuated. The Texas Legislature explicitly declared its intention in enacting this legislation in Art. 21.21 § 1:
The Texas Legislature further instructed that Art. 21.21 "shall be liberally construed and applied to promote its underlying purposes."
Moreover, the record reveals Health Net admitted it was engaged in the business of insurance, at least before the sale of the HMOs to AmCareco. In a memorandum submitted in support of a motion for summary judgment in this litigation, Health Net stated:
We find Health Net's statement within this litigation to be determinative of the issue. Even if Health Net's own statement was not sufficient on this point, we find the clear language of the Texas statute convinces us Health Net should be held to have engaged in the business of insurance before it sold the HMOs to AmCareco.
Our conclusion is further bolstered by the interpretation of former Article 21.21 found in the Texas Administrative Code. Title 28 Tex. Admin. Code § 21.1 provides:
The insurance regulations broadly prohibit unfair trade practices by "connected persons" in Section 21.3:
We find the statutory provisions are intended to have a broad reach, and should
After our analysis of the provisions of former Art. 21.21, we hold the appellate court committed legal error in failing to take notice of the statement made by Health Net within this litigation, and in failing to give a liberal interpretation to the statute at issue as required under Texas law.
With regard to the adequacy of the district judge's instructions on unfair or deceptive acts or practices, we note the district judge tracked the language of the statute, which charged the jury as to what constitutes an unfair or deceptive act or practice under Texas law.
According to the ad hoc panel, the jury charge on civil conspiracy was fatally defective because the district court failed to properly instruct on the concept of specific intent. For that reason, the court of appeal preferred another of Health Net's proposed jury charges, rather than the two proposed Health Net instructions which were included in the charge given by the district court. The appellate court found the jury was given no guidance to determine whether the underlying intentional torts—of fraud, breach of fiduciary duty, and unfair or deceptive acts or practices—were committed. Finally, the court of appeal held civil conspiracy, as a common law tort, was preempted by Tex. Bus. Corp. Act Art. 2.21(A)(2).
Under Texas law, a civil conspiracy is defined as:
TPJC 109.1.
Health Net relies on Triplex Communications, Inc. v. Riley, 900 S.W.2d 716 (Tex. 1995) for the proposition that the judge's failure to include a specific jury instruction defining specific intent with regard to the elements of civil conspiracy failed to adequately inform the jury of the cause of action to its prejudice. In Triplex, the defendant submitted a proposed jury instruction which defined "unlawful means" to include "negligence or the violation of a statute or law." Id., 900 S.W.2d at 719. The inclusion of "negligence" in the definition of "unlawful means" was fatal to the requested charge, as the Texas Supreme Court held the proposed instruction "would have improperly eliminated the intentional or knowing aspects of civil conspiracy." Id., 900 S.W.2d at 720. For the same reason, the Texas Supreme Court found erroneous the conspiracy charge actually given by the trial judge in Triplex, since the judge included negligence in its definition of a civil conspiracy.
The district court in the present case instructed the jury as follows:
We find the jury was properly charged under Texas law in conformity with applicable jurisprudence, TPJC 109.1 and two of Health Net's proposed jury charges.
Insofar as the court of appeal relied on the preemptive provision of Tex. Bus. Corp. Act Art. 2.21 to find Health Net could not be held liable as a shareholder as a matter of law for a common law tort other than actual fraud for its own direct personal benefit, we find, as previously discussed, that this finding has no merit. The Receivers were not seeking to pierce the corporate veil in order to hold Health Net liable for the actions of the HMOs. Instead, the Receivers were seeking to have Health Net held liable for its own actions.
We hold the jury charges on conspiracy adequately provided the correct principles of law for the jury to apply to the issues framed in the pleadings and the evidence, and adequately guided the jury in its deliberations on this issue. Adams, 2007-2110 p. 7, 983 So.2d at 804; Nicholas, 1999-2522 p. 8, 765 So.2d at 1023; Rosell, 549 So.2d at 849.
On appeal, Health Net complained the jury interrogatories regarding the allocation of fault violate Texas law by grouping together any party other than Health Net under the generic terms "Any other person(s)" and "Any other Company." The court of appeal agreed, finding "[t]he failure to submit to the jury the name of each possible responsible person and assess his or its individual percentage of fault was prejudicial error."
Initially, we must point out there was no error in the district court's rejection of Health Net's proposed jury interrogatory in this regard. Health Net submitted a proposed jury interrogatory on fault allocation which was extremely confusing. In addition, the proposed instruction contained a laundry-list of persons and entities, some not even mentioned during the 10-day trial, but whose names appear on some of the documentary evidence. However, insofar as the court of appeal found error in the district court's decision to group all other persons or companies together in the jury interrogatory on fault allocation, we will review this issue.
Tex. Civ. Prac. & Rem.Code Ann. § 33.003 provides:
Under Texas law, broad-form submission of questions is the preferred method of presentation to the jury. The Texas Rules of Civil Procedure explicitly provide that the court "shall, whenever feasible, submit the cause upon broad-form submission." See Tex.R. Civ. P. 277; Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 855 (Tex.2009) ("A trial court must, when feasible, submit a cause to the jury by broad-form questions."). Obviously, this preference for broad-form submission must be balanced against the language of Tex. Civ. Prac. & Rem.Code Ann. § 33.003(a). See Isaacs v. Bishop, 249 S.W.3d 100 (Tex.App.-Texarkana 2008). Ultimately, the standard for review is whether the trial court abused its discretion in deciding how to submit the charge. Isaacs, 249 S.W.3d at 108.
Here, all of the other defendants settled with the plaintiffs before trial or were finalizing settlements. Health Net was the only defendant remaining at trial. We find this factor alone distinguishes the present case from Perez v. Weingarten Realty Investors, 881 S.W.2d 490 (Tex. App.-San Antonio 1994), the Texas case relied upon by the appellate panel for its determination that prejudicial error occurred. In Perez, a premises liability suit was filed against multiple defendants who owned an apartment entity. The Texas trial court submitted a negligence question against one defendant only. The Texas jury found that particular entity was not guilty of any negligence and the plaintiff lost her case. Id., 881 S.W.2d at 492. On appeal, the plaintiff assigned as error the trial court's failure to submit her proposed jury questions. The Texas appellate court found no error, finding the plaintiff's proposed jury interrogatories attempted to lump all of the defendants together, even though there were questions of fact raised at the trial concerning which of the multiple defendants controlled the premises and was responsible for security. Id., 881 S.W.2d at 494-495. The Texas appellate court also noted a fundamental problem would arise in trying to confect a judgment in such a case, if the questions which lumped the defendants together were submitted to the jury, and the jurors found liability. Perez, 881 S.W.2d at 493-494.
Even in Perez, the Texas appellate court acknowledged that the decision to achieve simplicity instead of specificity is not always incorrect. Id., 881 S.W.2d at 494 ("Perez achieved simplicity at the expense of specificity. There is something to be said for this effort and this Court is not saying it is always incorrect to do so."). This is such a case. The only question before the jury was the percentage of Health Net's fault, if any, vis-a-vis any other responsible party. The district
Here, the submission of a broad-form interrogatory on fault allocation did not result in confusion in confecting a judgment, as feared in Perez,
After our examination of the jury charges which were provided to the jury on conspiracy and the substantive torts alleged, we hold the court of appeal erred in finding prejudicial error. Even where error was found, we cannot say, after considering the instructions as a whole and the circumstances of the case, that the jury instructions misled the jurors to the extent they were prevented from dispensing justice. Adams, 2007-2110 p. 7, 983 So.2d at 804. Likewise, we hold there was no prejudicial error in the district court's jury interrogatory on the allocation of fault. The court of appeal erred in justifying its decision to conduct a de novo review of the evidence on these grounds and the court of appeal ruling must be reversed in this regard. We hold, instead, the findings of fact by the jury should have been reviewed under the manifest error review standard. Adams, 2007-2110 p. 10, 983 So.2d at 806 ("Because we find no error in the jury instructions warranting de novo review, the jury's determination is subject to review for manifest error."). Before review under the proper standard may commence, however, we must determine whether merit exists in several additional issues raised by Health Net which were raised on appeal but pretermitted by the court of appeal.
Health Net argues in this court that there were additional errors in the jury instructions which were raised as assignments of error in the court of appeal as being prejudicial. Health Net claims these additional assignments of error would justify de novo review of the jury verdict, but were pretermitted by the appellate court due to that court's ruling in its favor. In the event we might find the court of appeal's de novo review to have
Although we find the court of appeal erred in its determination that de novo review of the jury verdict on the claims of the Texas Receiver was justified, we decline to remand this matter for further consideration of the pretermitted issues. This court, like the court of appeal, has appellate jurisdiction of both law and fact in civil matters, may perform an independent review, and may render judgment on the merits. See La. Const. art. 5, § 5(C); Campo v. Correa, 2001-2707 p. 11 (La.6/21/02), 828 So.2d 502, 510. We find the record is sufficient for us to address these issues without remand to the court of appeal.
On appeal, Health Net raised as assignments of error the district court's failure to include three of its requested jury charges on affirmative defenses. First, Health Net contends the district court erred in failing to instruct the jury on the doctrine of "in pari delicto," which precludes from recovery a plaintiff who participated in the tortious conduct. Health Net argues the Texas Receiver sued as defendants the officers and directors of AmCare-Tx, alleging they participated in wrongful conduct. Since the Texas Receiver is considered to have "stepped into the shoes" of AmCare-Tx in the receivership, Health Net asserts the Texas Receiver is barred from recovery based on the wrongful actions of the officers and directors of AmCare-Tx. The proposed instruction stated: "... that one who participates in wrongful conduct is precluded from recovery for the alleged wrong."
In addition, Health Net argued the jury should have been instructed on the Texas HMO's duty to mitigate its damages. Health Net proposed jury charges directing the jurors not to award damages "for any item of damage which AmCare-Tx could have avoided through reasonable effort." Health Net also requested the jury be instructed that "[d]amages that could have been avoided or mitigated are not recoverable. An injured party must use reasonable efforts to avoid or mitigate its losses."
Finally, Health Net asserted the district court erred in failing to instruct the jury on the issue of regulator fault as an affirmative defense. The background for this assignment of error is found in Wooley v. Lucksinger, et al., 2006-1167 (La.App. 1 Cir. 5/4/07), 961 So.2d 1228, an earlier ruling in this case by the ad hoc panel. Health Net sought appellate review of a judgment sustaining a peremptory exception of no cause of action to its third-party demand against La-DOI and dismissing the demand with prejudice. The court of appeal found the district court correctly dismissed the third-party demand but erred by not designating the allegations of governmental tort, or the fault of the regulators, as an affirmative defense. Id., 2006-1167 p. 24, 961 So.2d at 1245. Based on this ruling, Health Net contends
We find no error in the district court's failure to include the requested jury charges on these issues. The affirmative defense of in pari delicto is not applicable here. Generally, a receiver of an insolvent corporation has no greater rights than those possessed by the corporation itself. Guardian Consumer Finance Corporation v. Langdeau, 329 S.W.2d 926, 934 (Tex.Civ.App.-Austin 1959). However, Langdeau acknowledges:
Id.; see also Shaw v. Borchers, 46 S.W.2d 967, 968-969 (Tex.Com.App.1932) (same). While AmCare-Tx and its officers and directors might be precluded from recovery under the doctrine of in pari delicto, the Texas Receiver, acting in her dual role, is not so barred.
Here, the receiver is acting to protect the interests of innocent policyholders and creditors. Thus, there is no question that any fault of AmCare-Tx's officers and directors should be allowed to preclude recovery by these innocent parties. We hold the doctrine of in pari delicto simply does not apply in this factual situation. For the same reason, we find the proposed instructions on mitigation of damages were similarly inapplicable.
Finally, we hold the district court did not err in failing to instruct the jury as to regulator fault. "An insurance company may not delegate responsibility for valuation of its assets to a state agency, and the mere fact that an insurance commissioner accepts a company's asset valuation does not immunize the company from liability arising from that valuation." Meyers v. Moody, 693 F.2d 1196, 1210 n. 11 (5th Cir.1982), cert. denied, 464 U.S. 920, 104 S.Ct. 287, 78 L.Ed.2d 264 (1983). As shown by the record in this case, the state insurance regulators must rely on the honesty and integrity of the financial statements filed with them. By accepting these filings, the regulators do not displace the insurance company's fiduciaries or controlling parties or owners by performing their statutory role. Health Net's argument in this regard seeks to hold the "police" liable because they did not sooner catch the "robber" or prevent the robbery in the first place. As argued by the Receivers on appeal, "how the regulators performed their respective jobs—whether well or poorly—does not in any way lessen" Health Net's responsibility for its role in the conspiracy and in its subsequent tortious actions.
We note that the Texas legislature enacted legislation, effective September 1, 2005, after this case was tried, to specifically address the use of these types of affirmative defenses in the context of a receivership proceeding. Tex. Ins.Code Ann. § 443.011, in pertinent part, provides:
We hold the district court did not err in failing to instruct the jury on the affirmative defenses of in pari delicto, mitigation of damages, or regulator fault.
With regard to Health Net's requested instructions on compensatory damages, offset and exemplary damages, we will review these issues in our discussion on damages.
The court of appeal found, as an additional ground justifying de novo review, there were inconsistencies between the jury verdict on the tort claims of the Texas Receiver, the JNOV granted by the district judge, and the district court's judgment and reasons for judgment on the tort claims of the Louisiana and Oklahoma Receivers.
Nevertheless, to remove any doubt whether justification exists for the court of appeal's de novo review, we will examine these issues. Although this court has yet to consider the issue of the proper standard
Moreover, the several discrepancies noted by the court of appeal are minor and have no significance to the final judgment: (1) We find the district court's failure to instruct or submit a jury interrogatory on the issue of negligent misrepresentation is, at the most, harmless error in the context of this case, where the jury returned a finding that Health Net's actions were actually fraudulent. (2) As previously stated, the appellate panel's finding of patent legal error in the district court's use of the term "proximate cause" in the judgment in favor of the Louisiana Receiver is an error by the court of appeal resulting from its improper decision to reexamine the district court's choice of law ruling. (3) That one of the factfinders reached the same determination of Health Net's liability with a higher burden of proof is, at the most, harmless error. (4) Similarly, the addition of the phrase "or its creditors" in the Louisiana and Oklahoma judgments, but omitted from the jury interrogatories with regard to the claims of the Texas Receiver, is inconsequential. (5) Finally, the court of appeal's improper use of the district court's belated reasons for judgment, the basis for two of the asserted discrepancies, has been previously addressed, and rejected, in this opinion.
Our review convinces us the final jury charge, although not error-free, did not rise to a level which precluded the jurors from reaching a verdict based on the law and facts. Our determination in this regard invalidates this justification for the court of appeal's de novo review of the record. We reverse these portions of the court of appeal's decisions.
We find the court of appeal erred in determining that a de novo review of the record was necessary. We also find the appellate court erred in its conclusions following de novo review. We hold the jury's verdict and the district court's judgments in these matters must instead be reviewed for manifest error. We decline, in the instant case, to remand to the court of appeal for its further review, although in general the appellate courts of this state are charged with the primary responsibility of reviewing a trial court's factual findings. Campo, 2001-2707 p. 11, 828 So.2d at 510.
Here, we find the evidence concerning the issues before us was fully developed at trial. In addition, the attorneys have exhaustively briefed and argued the issues at all stages—in the district court, the appellate court and this court. Considering the passage of time, the complexity of the record, and our present understanding of the record, we now exercise our appellate jurisdiction of both law and fact in civil matters in the interests of judicial economy and efficiency and review the district court's judgment and the jury's verdict for manifest error. Id.; see also La. Const. art. 5, § 5(C).
In discussing the evidence supporting the factual findings of conspiracy and the substantive tort claims, we recognize the difficulty in neatly compartmentalizing the facts which satisfy the elements of each. There is a great deal of overlap, as the evidence which supports one of the Receivers' causes of action also satisfies others. Consequently, we will discuss the conspiracy as a whole and the evidence which convince us of the correctness of the factual findings of the judge and jury.
Initially, we note the evidence was sufficient, through both expert and lay testimony, and the documentary evidence admitted, to find proved the recitation of the factual history presented at the beginning of this opinion. The testimony established that Health Net is a sophisticated company with knowledge of the proper methods of accounting and the financial requirements for HMOs. When the HMOs were wholly-owned subsidiaries of Health Net, PDR accounts were always maintained as required by statute and the appropriate accounting practices. The external auditors for Health Net during that time determined a PDR in the aggregate amount of $10.5 million was required. These external auditors also determined there was no significant restructuring liability up to the time of the sale.
The evidence established Health Net wanted to divest itself of the underperforming HMOs and contracted with SHP, a division of PWC, to develop such a plan. We note the issue of the solvency of the HMOs was raised by the parties in several contexts. The Receivers claimed the HMOs were near or in an insolvent position before their sale "but for" Health Net's infusions of capital. The Receivers attribute a nefarious motive to Health Net's capital contributions which serves as a basis for the Receivers' argument that Health Net attempted to artificially shoreup the HMOs in an attempt to deceive the regulators before the sale. This argument has no merit, as we find Health Net acted, in this instance, merely as a responsible corporate parent. Prior to their sale, there is no doubt the HMOs were, as Dr. Hasan described them, in adverse financial conditions. Their unprofitability was the
A unique sale strategy was created, which involved selling the HMOs to a newly-created holding company, AmCareco. The evidence showed all of the parties worked closely together to ensure the transaction was approved by the state regulators. Health Net supplied SHP with the financial information which was ultimately provided to the insurance regulators in AmCareco's Form A filings. Lucksinger worked closely with SHP and members of Health Net's senior management on the change of ownership. The sale documents were drafted by Health Net and AmCareco's counsel. Correspondence from all of the regulators was routinely sent to Health Net through AmCareco's regulatory counsel.
As early as April of 1998, Health Net, SHP, AmCareco, Lucksinger and AmCareco's counsel were aware that the sale strategy would involve re-characterizing $6.3 million of PDR (which would later be contributed by Health Net), as a restructuring reserve, which would be reversed as of the day before the sale in order to increase what would constitute the "excess" cash which Health Net planned to sweep out of the HMOs. A year before the sale occurred, these persons knew the cash sweep would remove approximately $8.4 million from the HMOs at the time of sale, despite the fact that the HMOs would continue to lose money until that time.
In order to obtain the approval of the sale by insurance regulators in each state where the HMOs did business, the conspirators relied on a culture which presumed proper disclosure in regulatory filings, as well as the sheer volume of insurance companies
Yet even after withholding the Closing Agreement from the regulators, without which the regulators could not have understood the true nature of the transaction, Health Net and its senior management maintained that the approval of the uninformed regulators legitimized the sale. Westen testified that what was important to him was that the Louisiana regulators looked at the deal and believed it met the requirements.
The record shows the regulators were, in fact, confused by the multiple sale documents and deceptive financial information submitted to them. In Texas and Louisiana, meetings were held by the regulators with representatives of AmCareco and Health Net before approval was granted in order to have the sale strategy explained. Nevertheless, their trial testimony showed the state regulators were unaware of the true nature of the sale scheme presented to them.
Texas regulators, up to the night before the sale, were told no cash would be taken from the HMOs. When the financial schedule was faxed to the Texas regulator the night before approval was granted, her understanding of the sale was that only a portion of the cash sweep came from the HMO itself, but that the source of the cash consideration was the non-existent $22 million which AmCareco sought to raise through its POM.
Based on the financial information and sale documents provided to them, the Louisiana regulators believed approximately $670,000 would be removed from the Louisiana HMO during the change of ownership, and Health Net and AmCareco did not correct that initial interpretation.
One of the Oklahoma regulators relied on the representations made in the letter and financial schedule faxed to her by AmCareco's regulatory counsel the night before the approvals were obtained.
Edward Buttner, IV, accepted as an expert in statutory accounting after stipulation by the parties, testified the documents submitted to the regulators were not truthful because a person had to look at each of the documents to understand the transaction, paying close attention to what was not stated. In addition, Buttner testified the documents were misleading due to a number of misrepresentations and that the financial information conveyed to insurance regulators, particularly the estimate of the equity which was left in the HMOs after the transaction, bore no resemblance to reality and did not match the required statutory filings made just prior to the sale.
Mary Keller, accepted as an expert in the practices and policies of the Tx-DOI due to her extensive experience, testified the Form A filing was false and misleading because it basically said the Texas HMO would be in statutory compliance after the transaction and was not.
In Keller's expert opinion, the Texas Commissioner would not have approved the transaction had he known what was the true situation.
Thomas Handley, one of the Receivers' experts, accepted as an expert in actuarial
The Form As, the financial schedules, the multiple documents of sale and the statements made by the parties led the regulators to believe the HMOs would maintain statutory and regulatory requirements after the change of ownership. Not until several months later did the insurance regulators find out that millions of dollars were transferred out of the HMOs to Health Net as a term of the sale. Expert testimony showed Health Net removed in the cash sweep $2,543,000 from the Louisiana HMO, $2,904,000 from the Oklahoma HMO, and $2,920,000 from the Texas HMO, far in excess of what the insurance regulators believed or approved.
After the sale, the HMOs failed to meet minimum statutory and regulatory requirements for conducting business in their respective states. Expert testimony established the minimum statutory capital or equity required for an HMO in Texas was $1.5 million; after the cash sweep, the Texas HMO was [-] $1,632,000. In Louisiana, pursuant to the condition placed on the Louisiana HMO by the regulators, the statutory minimum capital requirement was $4 million; after the cash sweep, the Louisiana HMO was $1,371,000. In Oklahoma, the statutory minimum capital requirement was $750,000; after the cash sweep, the Oklahoma HMO was $102,000.
Here, we find no manifest error in the factfinders' conclusion that Health Net was involved in a civil conspiracy:
These same facts support the judge's and jury's finding that Health Net committed fraud. Health Net and its co-conspirators successfully used cunning, deception or artifice to cheat others to their injury. There was no manifest error in the factfinders' conclusion in this regard.
The negligent misrepresentation claim arises from the same facts as, and was asserted in the alternative to, the fraud claim. Although the jury was not instructed as to this cause of action, the district court found Health Net liable for negligent misrepresentation, which we will now review.
To establish liability for negligent misrepresentation, a plaintiff must demonstrate that (1) the defendant made a misrepresentation in the course of his business, or in a transaction in which he has a pecuniary interest; (2) the defendant supplied "false information" for the guidance of others in their business; (3) the defendant failed to exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff was damaged as a result of relying on that representation. Federal Land Bank Association of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex.1991), relying on Restatement (Second) of Torts § 552 (1977). In Wheeler v. American Nat. Bank of Beaumont, 347 S.W.2d 918, 162 Tex. 502, 347 S.W.2d 918, 925 (1961), the Texas Supreme Court found a receiver for an insurance company could assert a cause of action based on misrepresentations made to regulatory officials.
Here, there is no manifest error in the holding that Health Net was additionally liable for negligent misrepresentation. The evidence and testimony, especially that of the expert witnesses, confirmed that Health Net and its agents provided inaccurate and incomplete information to the regulators before the sale pursuant to a scheme to win the regulators' approval of the sale. In the absence of accurate and complete information, the regulators were not able to understand the true facts about the transaction they were to examine. Health Net had a substantial pecuniary interest in the sale transaction. Health Net and its agents negligently, if not intentionally, communicated inaccurate and misleading financial schedules and other information to the regulators. The plaintiffs' reliance on these false documents was justified and caused them harm.
Similarly, the testimony of both fact and expert witnesses support the judge's and jury's finding that Health Net engaged in unfair or deceptive acts or practices under Texas law. By filing, making or publishing untruthful and misleading statements about the financial condition of the HMOs with the intent to deceive, Health Net and its co-conspirators engaged in unfair or deceptive acts or practices as defined by Texas law. Basically, anything which Health Net or its co-conspirators created and filed which implied the HMOs would be compliant after the sale would constitute an unfair or deceptive act or practice under the circumstances of this case. There was extensive evidence that this was so.
The financial information compiled by Crary and his staff was transmitted by Health Net through Coburn at SHP to
Keller, the expert on the Tx-DOI, believed the Form A filing, the product of information supplied by Health Net, was false and misleading because it basically stated the Texas HMO would be in statutory compliance after the transaction, and it was not.
Brignac, one of the La-DOI regulators who approved the sale, believed the financial schedule was misleading.
Phillip Preis, another of the Receivers' experts, accepted as an expert in corporate finance and complex corporate transactions, believed the Form A filings represented to the regulators that AmCareco had $22 million in capital, and that was not so.
Finally, we find the evidence at trial supported the judge's and jury's findings that Health Net was liable for the breach of fiduciary duties through both lay and expert testimony. Westen believed Health Net had a fiduciary duty to the HMOs' policyholders not to put them into another company that had no chance of survival.
Gellert testified he owed fiduciary duties to the HMOs before their sale to follow the regulations in the states where the HMOs did business and to meet the HMOs' contractual commitments.
Testimony showed Crary was the Health Net financial person working most closely on the deal, even though he was a Health Net officer, as well as the CFO of the HMOs,
Preis, the Receivers' corporate expert, however, believed there was no question
Although Health Net argued the directors and officers resigned as of April 30, 1999, and the cash sweep occurred on May 3, 1999, when Gellert, Jansen and Crary were no longer officers or directors, this circumstance does not insulate their actions from constituting a breach of fiduciary duty. The evidence established that the money in the PDR was transferred to Health Net, who still had control of the bank accounts, through the transaction which they negotiated and drafted while they still were officers and directors of the HMOs. These officers and directors of the HMOs acted on behalf of Health Net alone in negotiating and drafting the sale documents which removed the money from the HMOs and transferred it to Health Net; Health Net was liable for their actions.
Because the jury voted unanimously that Health Net was guilty of gross negligence and malice toward the plaintiffs, the jury was entitled to consider whether the Receivers were entitled to punitive or exemplary damages.
Yet Health Net's senior management ignored these facts. Westen testified he knew of Louisiana's $4 million requirement for the Louisiana HMO, but said Health Net had no obligation to make sure the Louisiana HMO met that requirement after closing.
As already discussed, Crary had no specific concern the HMOs would be financially-impaired after the transaction, since any concerns the medical bills would be paid was a concern for the buyers.
Expert testimony established that reversing the PDR was not appropriate from an accounting standpoint, recognizing that nothing had changed in the HMOs which could have justified reversing the PDR account. Buttner noted there had been no rate changes, the HMOs had not gotten out of any existing contracts, and the HMOs had not negotiated new provider agreements.
The genius of this conspiracy was the plausible deniability it gave to its members. Health Net could, and did, argue its decision to sell the HMOs was purely an exercise of sound business judgment.
Health Net could claim it had found, in Lucksinger, a buyer with extensive experience in turning around failing HMOs. Yet Lucksinger acquiesced in Health Net's scheme to gut the HMOs and improperly remove money set aside to pay future health care costs. Moreover, Lucksinger's contacts with the Tx-DOI and his good relationship with that agency was useful in soothing the regulators' concerns regarding the sale transaction.
Health Net could also claim the terms of the sale did not change throughout and that the regulators were not, in fact, misled. However, as we have shown, the testimony of the regulators showed they were ignorant of the true nature of the transaction. Several of the regulators testified, similar to the testimony of Health Net senior management, that the financial schedules were only meant to calculate the cash sweep and the value of the Class A stock.
The judge and jury, in finding the evidence of the conspiracy and the substantive torts proved, were also able to evaluate the testimony of several key witnesses who claimed to remember none of the details of the transaction. Crary, Coburn and Conway, who testified by videotaped deposition, could not remember pertinent details of their actions which gave effect to Health Net's scheme. The fact finders rejected Health Net's justifications, and we find the record supports their credibility determinations.
The judge and jury were provided with two opposing views in the expert testimony and chose to believe the Receivers' expert witnesses. In addition to the expert testimony of the Receivers referred to throughout this opinion, there were several other expert opinions worth noting. Although Buttner agreed several persons and entities shared liability for the failure of the HMOs, he placed Health Net at the top of the list of those responsible because Health Net took the money out of the
Preis formed two main opinions in this case. First, Preis after working in regulated industries for thirty years, had never seen a transaction where the capital of a company was reduced and paid to a controlling shareholder when there was no actuarial study done to justify the payment of that amount and when the company had experienced losses on an ongoing basis to the degree that these companies had experienced losses.
According to Preis, Health Net alone was responsible for the re-characterization and reversal of the PDR account because Health Net was the only party who could have decided, or agreed, to do so. Health Net owned the HMOs; the HMOs were never parties to the agreement.
By contrast, Health Net's first expert witness failed to qualify.
After a painstaking review of the record, we find no manifest error in the factual findings of the judge and jury. We affirm their determinations that Health Net is liable for a breach of fiduciary duty, committed fraud, knowingly engaged in an unfair or deceptive act or practice, conspired with others, made negligent misrepresentations and acted with malice or gross negligence. The factual findings of the judge and jury in this regard are affirmed. We now review the damages awarded and the judgment notwithstanding the verdict.
Health Net argues the compensatory damages awarded to the Receivers must be reversed or reduced. Health Net claims the amounts awarded are excessive, are based upon speculative and imprecise evidence, and should be reduced by certain amounts attributable to other tortfeasors. Finally, Health Net contends the jury instruction with regard to damages was prejudicially erroneous.
Under Texas law, the plaintiff bears the burden to prove his damages with reasonable certainty to enable a jury to compute them. Ford Motor Co. v. Cooper, 125 S.W.3d 794, 803 (Tex.App.-Texarkana 2004). Although awards should not be based on speculation,
Qaddura v. Indo-European Foods, Inc., 141 S.W.3d 882, 890 (Tex.App.-Dallas 2004) (internal citations omitted). Rigid mathematical certainty is not required. Bildon Farms, Inc. v. Ward County Water Imp. Dist., 415 S.W.2d 890, 896 (Tex.1967). Instead,
Vance v. My Apartment Steak House of San Antonio, Inc., 677 S.W.2d 480, 484 (Tex.1984). Courts may not award damages which would result in an impermissible double recovery. Southern County Mut. Ins. Co. v. First Bank and Trust of Groves, 750 S.W.2d 170, 173-174 (Tex. 1988).
With these principles in mind, we will review each of Health Net's contentions regarding the compensatory damages awarded.
Health Net argues the district judge gave only a brief, vague instruction on compensatory damages, essentially telling the jury to award a "just and adequate compensation."
We find Health Net misrepresents the entirety of the court's instruction on damages and we hold its contentions have no merit. The district court instructed the jury:
The district court also read to the jury the interrogatories which it had to answer after its deliberations, including Interrogatory # 10, which questioned the jury about damages:
A review of the two jury instructions Health Net proposed which were not used by the district court shows the charge which was provided to the jury was substantially similar.
With regard to Health Net's proposed instruction on offset, we find the proposed charge sought to reduce any compensatory damages awarded by the amount of two promissory notes given by "the AmCareco single business enterprise" to Health Net. Although the evidence showed AmCareco operated the HMOs in a concerted fashion, the expert testimony at trial was undisputed that the shifting of assets between and among the regulated insurance companies and the unregulated parent company and management company was improper under accounting principles and contrary to the statutes and regulations in each of the states where the HMOs conducted business. Thus, the requested instruction was contrary to the applicable law.
Health Net contests the amount of the compensatory damages awarded to the Texas Receiver. Health Net argues the award is excessive, in that there was evidence showing the amount awarded by the jury, $52,400,000, should have been reversed or reduced.
The Texas Receiver testified about the receivership process in Texas and her receipt of proof of claims with regard to the AmCare-Tx receivership. In Texas, if a creditor does not meet the claim filing deadline, that claim is not considered.
The Texas Receiver had been able to marshal assets of AmCare-Tx from others in the amount of a little over $5 million, and had approximately $12 million in the bank at the time of her testimony. However, she testified she was also obligated to pay the expenses for the claims adjudication, for litigation and for experts from the receivership's assets.
The Texas Receiver affirmed that Mark Tharp was hired as an expert in the litigation to review the claims adjudication procedures of the HMOs.
The Texas Receiver had not yet obtained court approval as required before payment of the unpaid claims.
Health Net argued the testimony of the Texas Receiver, as a verbal estimate of the amount of the total unpaid claims is not "reasonably certain" evidence upon which the jury could based its compensatory damage award. Health Net also contends, since the Texas Receiver has not yet obtained court approval to pay these claims, the total amount of unpaid claims about which she testified is, at this time, wholly speculative and cannot support a compensatory damage award. We find to the contrary. The Texas Receiver's explanation of the claims process in Texas, the work done by her staff in processing the proofs of claims, and her determination of the total amount of unpaid claims produced the best evidence available to quantify the amount of the damages suffered; we find the question of the amount of compensatory damages was properly submitted to the jury. Vance, 677 S.W.2d at 484 (where an estimate was sufficient to raise a question of fact to defeat a directed verdict on the question of damages); Bildon Farms, 415 S.W.2d at 897 ("All that the law requires is that the best evidence of which a case is susceptible be produced, and if from such evidence the amount of damages caused by the defendant can be inferred or estimated by the jury with reasonable certainty, then the amount of such damages is for the jury.").
Health Net additionally argues the amount of the total unpaid claims should be reduced by the $12 million which the Texas Receiver has in the bank on behalf of AmCare-Tx. The district court specifically denied Health Net this reduction in her ruling on JNOV.
Finally, Health Net argues the amount of compensatory damages should be reduced by Tharp's original estimate of potential duplicate payments and overpayments. The testimony was clear at trial, however, that Tharp's original estimate was further reduced after further information was conveyed to him, and that his estimate of
On appeal, Health Net contested the amount of compensatory damages awarded to the Oklahoma Receiver. Health Net argues the award is excessive, in that there was evidence showing the amount awarded by the judge, $24,426,005,
As in Texas, everything the Oklahoma Receiver does is supervised by the receivership court in Oklahoma. All bills have to be submitted for approval; all claims have to be approved before paid.
Barry Bostick, the Assistant Receiver for AmCare-Ok testified that 82,400 proofs of claims remained unpaid in Oklahoma.
As of that time, the Oklahoma Receiver had recovered between $6-7 million in the bank for the estate of AmCare-Ok.
Health Net argues the compensatory damage award should be reduced by the amount of funds which the Oklahoma receivership has on hand for AmCare-Ok. We agree with the district judge that no reduction in this amount should be made in the compensatory damages. In addition to the total amount of unpaid claims, the Oklahoma Receiver is also obligated to pay the expenses for the claims adjudication, for litigation and for experts from the receivership's assets.
As with the Texas award, Health Net urges the compensatory damage award should be reduced by the amount of
Health Net claims a reduction should be made in the amount of $1,056,000, which the Assistant Receiver believes is owed to the Oklahoma HMO by individuals who have submitted proofs of claim to the Oklahoma Receiver. The Assistant Receiver acknowledged approximately $1,056,522.21 were duplicate payments or overpayments which the Oklahoma Receiver would attempt to collect either outright, or through offsetting other payments. However, he cautioned that those amounts may not be collectible.
Finally, Health Net contends the Oklahoma compensatory damages should be reduced by $1.5-$1.8 million which the Oklahoma HMO believes was improperly paid to AmCare-Mgmt. The Assistant Receiver indicated that AmCare-Ok filed a proof of claim against AmCare-Mgmt in that amount.
We find there was sufficient evidence supporting the district court's award of compensatory damages to the Oklahoma HMO and affirm that award. The reductions asserted by Health Net are not warranted.
On appeal, Health Net contested the amount of compensatory damages awarded to the Louisiana Receiver. Health Net argues the award is excessive, in that there was evidence showing the amount awarded by the judge, $9,511,624.19,
The Deputy Receiver for AmCare-La, L.D. Barringer, testified about receivership
The Deputy Receiver testified that after months of work, the receivership determined there were $490,000 duplicate payments or overpayments.
The Deputy Receiver stated there were about 40,000 unpaid claims which the Louisiana receivership had to process.
A proof of claim on behalf of AmCare-La was filed in the receivership in Texas of AmCare-Mgmt in the amount of $17 million.
Health Net contends the amount of compensatory damages should be reduced by the amount of estate medical claims, because no proofs of claims had yet been filed, and by the amount of duplicate payments or overpayments which have not yet been processed. We disagree. The Louisiana
Health Net also contends the damage award should be reduced by the amount of potential duplicate payments and overpayments found by Tharp. As with the identical claim made with respect to the Texas and Oklahoma compensatory damage award, we find no reduction is necessary. The testimony at trial was clear that Tharp determined only the potential amount of duplicate payments and overpayments. Tharp himself deferred to the actual amounts of duplicate payments and overpayments determined by the Receivers who analyzed the actual proof of claims.
Finally, Health Net claims the compensatory damage award should be reduced in the amount of the proof of claim which AmCare-La filed in the receivership proceeding of AmCare-Mgmt, claiming Health Net had nothing to do with improper payments made by others. We disagree. Not only are the compensatory damages awarded here "as a result of defendant Health Net, Inc.'s fault," the testimony was clear that the Texas receivership court had not approved payment of the Louisiana HMO's proof of claim, nor did the Deputy Receiver have any hope such a claim would be paid.
We find there was sufficient evidence supporting the district court's award of compensatory damages to the Louisiana HMO and affirm that award. The reductions asserted by Health Net are not warranted.
Health Net argues the jury instructions provided to the jury before its consideration of punitive or exemplary damages was prejudicially erroneous, as the charge failed to adequately inform the jury about several aspects of Texas law. In addition, Health Net contends the punitive damage award was excessive and violated its right to due process.
Health Net asserts the instructions given by the district court for the jury's consideration of punitive or exemplary damages were prejudicially erroneous because the district judge failed to give several specific instructions required by Texas law.
The record shows that after the jury returned with its verdict on the tort claims of the Texas Receiver, the district court held a conference in chambers with counsel during a brief recess. When court was back in session, the district court informed the jury that there had been a bifurcation of certain issues and that the remaining issue concerned exemplary damages, which would now be submitted to them for their consideration.
Thereafter, counsel for the Texas Receiver and Health Net were allowed to present a short argument on the issue of punitive damages. Counsel for the Texas Receiver stated the jurors' unanimous finding that Health Net was guilty of gross negligence and malice against the plaintiffs allowed them to consider whether punitive or exemplary damages should be awarded. The Texas Receiver's counsel argued such damages were to punish and to "send a message" to litigants whose conduct was egregious. Rather than suggest an amount of damages to punish Health Net, counsel for the Texas Receiver left that consideration for the jury.
The district court then instructed the jurors what Texas law required them to consider in determining the amount of exemplary damages:
At this point, counsel for the Texas Receiver pointed out to the court the requirement under Texas law that a jury be unanimous as to the amount of any exemplary damages awarded.
Health Net's failure to object to the jury instruction on punitive damages either before the jury retired to deliberate or immediately thereafter waives this ground for review. See La. C.C.P. art. 1793(C).
Tex. Civ. Prac. & Rem.Code § 41.001 provides definitions of various words or types of damages which may arise in a damages jury instruction. Considering Health Net's argument, we discern the specific definition which Health Net claims was omitted from the jury's charge was a formal definition of "exemplary damages."
While the district court did not provide the jurors with a formal definition of exemplary damages at this time, we note her instructions on compensatory damages, which the jury heard directly before this portion of the trial, made the distinction between compensatory damages and punitive damages. Compensatory damages were defined as those for "simple reparation," "to fairly compensate the plaintiff for the damages actually suffered," and "to restore the plaintiff as closely as possible to the position which they would have occupied had the injury never occurred," distinct from "any idea of revenge or punishment. Accordingly, you should not include any element in your verdict of such punitives."
Although we cannot consider the argument of counsel as a substitute for the court's instruction, we note that the purpose and meaning of exemplary or punitive damages constituted the major theme of the brief argument by both counsel provided immediately before the jurors' deliberation. We also consider the lack of objection by Health Net's counsel at that time. We find, on this record, that the jurors were adequately informed about the nature and purpose of the punitive damages which they were instructed to consider.
Tex. Civ. Prac. & Rem.Code § 41.003 provides the standards for recovery of exemplary damages:
Because the issue of liability and compensatory damages was bifurcated from the issue of punitive or exemplary damages, the district court was not required to instruct the jurors as to the provisions of Tex. Civ. Prac. & Rem.Code § 41.003(a), (b) and (d). At the time the jurors considered awarding punitive damages, they had already unanimously found, by clear and convincing evidence, and after proper instruction, that Health Net acted with malice or gross negligence.
Tex. Civ. Prac. & Rem.Code § 41.010(a) has already been discussed. Subsection (b) provides: "[s]ubject to Section 41.008 [which provides limitations on the amount of recovery for use by the court alone], the determination of whether to award exemplary damages and the amount of exemplary damages to be awarded is within the discretion of the trier of fact." We find the district court instructed the jurors that "[t]he question of exemplary damages or punitive damages belongs to the jury." We find the district court also instructed the jurors on the factors they should consider "whether or not" they awarded exemplary damages. We hold the district court substantially complied with the provisions of Section 41.010.
Tex. Civ. Prac. & Rem.Code § 41.011 details the type of evidence the trier of fact shall consider in determining the amount of exemplary damages to award, if any. We find the district court repeated the provisions of this Section verbatim to the jurors. There was no violation of Texas law.
Having considered the requirements of Texas law for instructing a jury on the issue of punitive or exemplary damages, and the jury charge actually provided to the jurors in this case, we hold there was no error which acted to Health Net's prejudice; Health Net's assignments of error in this regard have no merit.
Health Net contends the punitive damages awarded in this case were excessive as a matter of law. In Mosing v. Domas, 2002-0012 (La.10/15/02), 830 So.2d 967,
Id., 2002-0012 p. 6, 830 So.2d at 972-973.
Mosing concluded "that when an appellant has properly raised a federal due process claim, pursuant to Cooper, the reviewing court must conduct a de novo review of the exemplary damage award, utilizing the three `guideposts' set out in BMW of North America v. Gore, supra." Id., 2002-0012 p. 10, 830 So.2d at 975.
First, we will examine de novo the degree of reprehensibility of Health Net's conduct. "[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct." BMW, 517 U.S. at 575, 116 S.Ct. at 1599. In making this examination, we will consider whether:
State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419, 123 S.Ct. 1513, 1521, 155 L.Ed.2d 585 (2003), citing BMW, 517 U.S. at 576-577, 116 S.Ct. at 1599-1600.
Based on the evidence, we find Health Net's conduct had an enormous economic impact on the fate of the Texas HMO. By orchestrating a scheme to divest itself of the financially-distressed HMO, while at the same time removing a substantial amount of the assets remaining in the company, Health Net essentially gutted the foundering HMO before leaving it in the hands of an undercapitalized holding company. But economic harm was not the only result of Health Net's conduct. Since the economic harm was caused to an HMO, Health Net's conduct also evinced an indifference to or a reckless disregard of the health and safety of others, namely the HMO's members and policyholders.
There were actually two financially-vulnerable targets of Health Net's conduct— the HMO itself, and the members and policyholders it serviced. The HMO was financially-vulnerable to Health Net's conduct because the HMO was Health Net's wholly-owned subsidiary. In addition, some of the officers and directors of the Texas HMO, who should have been acting with due care for the interests of the HMO, were subverted by their dual loyalty to Health Net to create and work on the scheme which resulted in the HMO's financial harm. The members and policyholders of the HMO were financially-vulnerable, as well. Since the parties to the sale were Health Net and AmCareco only, with no participation by the Texas HMO, the members and policyholders of the HMO had no say whatsoever in the terms of the transaction.
Although the sale transaction was a single occurrence, we find there were multiple instances of concerted effort where Health Net and its agents acted to bring the improper sale scheme into existence.
Finally, we believe the evidence was overwhelming that the harm which occurred was the result of intentional malice, trickery or deceit. For all of the reasons expressed in our manifest error review of the jury's findings of fraud, malice or gross negligence, we find, upon our de novo review of that same evidence, that Health Net's conduct was malicious and deceitful.
We now examine the second factor for determining whether the exemplary damage award was constitutionally excessive— the ratio between the compensatory damages awarded and the exemplary damages awarded in this case. In the BMW case, we noted "the Supreme Court was troubled by the 500 to 1 punitive to compensatory damages ratio presented in that case." Mosing, 2002-0012 p. 20, 830 So.2d at 981. However, the Supreme Court cautioned "we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula." BMW, 517 U.S. at 582, 116 S.Ct. at 1602. We have previously held an award of exemplary damages "must be viewed in its unique context, in light of the facts of the case and with reference to the actual damages awarded and the potential harm that could have resulted from the defendant's conduct." Mosing, 2002-0012 p. 21, 830 So.2d at 981, citing BMW, 517 U.S. at 580-583, 116 S.Ct. at 1601-1603.
Here, the ratio of compensatory to exemplary damages is 1:1.24. We see no "shocking disparity" inherent in this figure. We note the amount of punitive damages awarded in this case does not violate the limitations on the amount of recovery
The actual economic harm suffered by the members, policyholders and creditors of the Texas HMO was extensive, not to mention the possibility of significant harm to the health, safety and well-being of the HMOs members and policyholders.
Finally, comparing the exemplary damage award to the civil or criminal penalties that could be imposed for comparable misconduct is not easily accomplished. Although the insurance industry is highly regulated, the "penalty" which the regulators would have imposed had they been aware of the true nature of the transaction and the fraudulent and deceitful conduct of Health Net would have been a rejection of the change of control of the HMO. The record lacks any indication that criminal sanctions were sought for the fraudulent conduct of the defendants. Consequently, we do not find our analysis of this factor aids our determination whether the exemplary damages are excessive.
We additionally consider the wealth of the defendant, as this court has held that information is an appropriate factor to consider. Mosing, 2002-0012 p. 10, 830 So.2d at 975. The parties stipulated the financial net worth of Health Net was, at that time, $500 million. The award of exemplary damages is 13% of the financial net worth of Health Net. While we concede that this award is large, it is well within Health Net's ability to pay.
Considering the above factors in our de novo review of the exemplary damage award, we conclude that the award of punitive damages, under the facts of this case, is not so excessive as to constitute a violation of Health Net's rights to due process.
Health Net argues its due process rights under the Fifth and Fourteenth Amendments were also violated because the jury in the Texas case was improperly permitted to punish Health Net for alleged "unlawful acts committed outside" Texas, in violation of State Farm, 538 U.S. at 421-422, 123 S.Ct. at 1522. Health Net contends the district court allowed the jury to hear and consider evidence from the Louisiana regulator, over objection, that concerned conduct that occurred wholly outside of Texas and that was relevant only to the Louisiana case.
Health Net relies on BMW, supra, and State Farm, supra, for the proposition that due process requires that punitive damages cannot be imposed on a defendant for unlawful acts committed outside of the State or for conduct that does not have a nexus to the specific harm suffered by the plaintiff. The factual circumstances here distinguish this case from either State Farm or BMW. At issue in both BMW and State Farm was evidence submitted in support of an award of punitive damages of the defendant's conduct out-of-state that was lawful in that jurisdiction. In that context, State Farm held "[l]awful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff." Id., 538 U.S. at 422, 123 S.Ct. at 1522. This was based on the "basic principle of federalism ... that each State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction." Id., 538 U.S. at 422, 123 S.Ct. at 1523.
Not only were the out-of-state actions in State Farm lawful in the state where they were committed, but the conduct bore no relation to the plaintiff's harm and, in fact, were dissimilar acts. Under these circumstances, the Supreme Court held:
Id., 538 U.S. at 422-423, 123 S.Ct. at 1523.
The Supreme Court cautioned "[p]unishment on these bases creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains." Id., 538 U.S. at 423, 123 S.Ct. at 1523. Although normally recidivist actions may serve as justification for exemplary damage awards, the Supreme Court warned that, "in the
Similarly, in BMW, the Supreme Court accepted "the Alabama Supreme Court's interpretation of the jury verdict there as reflecting a computation of the amount of punitive damages `based in large part on conduct that happened in other jurisdictions.'" Id., 517 U.S. at 573, 116 S.Ct. at 1598. In that case, neither the jury nor the trial court was presented with evidence that any of the defendant's out-of-state conduct was unlawful. Id. Although the Alabama Supreme Court "eschewed reliance on BMW's out-of-state conduct" and based its review of the award "solely on conduct that occurred within Alabama," the Supreme Court found that when the award was properly reviewed in this more limited manner, the exemplary damage award was grossly excessive. Id., 517 U.S. at 573-574, 116 S.Ct. at 1598.
The considerations in State Farm and BMW are not present here. While Brignac was testifying about the defendant's conduct in Louisiana, those actions were the same as its actions in Texas and were, moreover, a part of a single conspiracy for which the defendant was being tried. Thus, the Louisiana conduct of the defendant which the jury heard was the same unlawful conduct in Texas for which they were asked to consider punitive damages. Since all of Health Net's actions were part of the same conspiracy, the conduct in Louisiana had a direct nexus to the specific harm suffered by the Texas HMO. We find there was no violation of Health Net's due process rights under these circumstances. We note the Supreme Court's recognition of the possibility of multiple punishment for the same conduct was not an issue in this case, where the jury considering the claims of the Texas Receiver awarded punitive damages, but the judge considering the claims of the Louisiana and Oklahoma Receivers failed to award punitive damages.
In its November 4, 2005 judgments regarding the tort claims of the Louisiana and Oklahoma Receivers, the district court indicated that its finding of Health Net's liability for knowingly engaging in an unfair or deceptive act or practice that was a proximate cause of the HMOs' damages entitled the plaintiffs to an award of attorneys fees, treble compensatory damages or punitive damages. Similarly, the district court indicated its finding that Health Net engaged in fraud, malice and gross negligence, and that this conduct was sufficiently egregious, warranted an award of punitive damages. Both issues were set to be determined at a later-held hearing. These judgments were designated as final judgments.
After the hearing, the district court, in oral reasons, ruled that the Louisiana and Oklahoma Receivers failed to meet the required burden for a determination of the proper amount of an award for attorneys fees and later signed separate judgments on December 6 and 12, 2005.
On appeal, the ad hoc panel issued show cause rules to determine whether the district court's December rulings improperly affected the substance of the original November judgments on punitive damages and attorneys fees. While we find no fault with the court of appeal's recitation of the procedural facts, we do not agree with its legal reasoning, or with its resolution of the issue.
The court of appeal correctly found the November judgments substantively decreed the liability of Health Net for punitive damages and attorneys fees.
In its reasoning on the attorney fee issue, the appellate panel inferred that when the trial judge ruled the Louisiana and Oklahoma HMOs failed to meet their burden of establishing the award, "she was referring to the liability judgment and not a quantum ruling" because the plaintiffs
In its reasoning on the punitive damages issue, the appellate panel was distracted by the judge's inclusion of the phrase: ". . . grants judgment in accordance with C.C.P. Art. 1672(B)" in its judgment. As found by the appellate court, there was no motion for involuntary dismissal filed by any party to this litigation.
We find our beliefs are supported by the district judge's oral reasons in the record. At the hearing on attorneys fees and punitive damages held on November 21, 2005, the district court was informed that the three Receivers had signed a fee sharing agreement.
We find it clear from the district court's oral reasons that she believed the punitive damages awarded by the jury on the claims of the Texas Receiver were adequate punitive damages for the entirety of Health Net's actions. While in her November judgments she indicated that her findings warranted the imposition of punitive damages for the Louisiana and Oklahoma Receivers, upon consideration of a
We find the district court's rulings on punitive damages and attorneys fees for the Louisiana and Oklahoma Receivers are supported by the record and are not an abuse of discretion.
After review of the issues raised with regard to the award of punitive damages, we hold the district court did not prejudicially err in providing instructions to the jury considering exemplary damages for the claims of the Texas Receiver. The punitive damages awarded by the jury were not unconstitutionally excessive and were based on a proper consideration of factors. We also hold the district court's judgment denying the Oklahoma and Louisiana Receivers an award of attorneys fees and a separate award of punitive damages was supported by the record.
The district court granted Health Net's motion for judgment notwithstanding the verdict regarding the jury's verdict on the tort claims of the Texas Receiver. Specifically, the district court apportioned an additional 15% fault to "other persons" and reduced the punitive damage award by 30%. The district court denied Health Net's alternative motions for new trial and remittitur, finding no grounds for such relief.
The standard of review for a JNOV was described in Forbes v. Cockerham, 2008-0762 p. 31 (La.1/21/09), 5 So.3d 839, 858. La. C.C.P. art. 1811 provides the procedural rules for such a motion, which is warranted
After listening to the arguments of counsel at a hearing held on August 19, 2005 on the motion for JNOV, the district court found:
Finding that very little information or argument was presented to the court on the separate issue of the correctness of the punitive damages, the district court allowed counsel further argument on that issue.
After considering counsel's arguments, the district court ruled on the second issue raised in the motion for JNOV, the request for reduction in the punitive damages awarded by the jury:
After our review of the record, we find the district court's judgment on JNOV with regard to the fault allocation was supported by the evidence in this case and conclude that reasonable persons could not reach a different result. The jury found 15% of the fault should be allocated to "other companies," and there was sufficient evidence presented at trial regarding the gross mismanagement of the HMOs by AmCareco and the negligence or complicity of PWC and AmCareco's attorneys which led to the eventual failures of the HMOs.
There was also evidence of the liability of "other persons" in their individual capacities which support the district judge's allocation of 15% of the fault to those persons. The district judge mentioned Lucksinger, Nazarenus and Conway as three individuals whose actions resulted in the damages sustained by the HMOs for which liability should be allocated. We find the record fully supports the district judge's ruling in this regard.
Lucksinger claimed he thought the cash infusions into the HMOs by Health Net in March of 1999 were excess wind down reserves. He claimed he did not know the HMOs needed a PDR until computations were made after the sale in June or July of 1999. However, his testimony about his lack of understanding of the terms of the sale conflicted with that of every other person testifying. The members of Health Net's senior management who worked on the transaction with him, as well as AmCareco's counsel, testified Lucksinger fully understood the terms of the deal and emphasized he was sophisticated about all aspects of the business and industry. Even Preis, the Receivers' expert on corporate transactions, had no doubt Lucksinger understood the terms of the sale transaction and fully acquiesced in the deal. Lucksinger's reliance on Health Net to bail out AmCareco was completely rejected by both Dr. Hasan and Westen. The judge was also entitled to consider the fact that Lucksinger personally lost nothing in these transactions. Lucksinger acquiesced in the sale strategy developed by Health Net; was the driving force for incorporating AmCareco; was a key player in the negotiation of the sale, including using his influence with the Texas regulators. He continuously told Nazarenus to keep AmCareco going in any way possible and prevented others from understanding the true nature of the companies' insolvency by his insistence that Health Net would ultimately provide the capital needed to save the insolvent companies.
Nazarenus, as CFO of AmCareco and the HMOs, was in charge of the improper accounting developed to hide the insolvency of the companies from the regulators. He made up phony intercompany receivables, lied to or misled regulators, improperly moved cash from one company to
Conway, as regulatory counsel for AmCareco, timed the disclosure of the financial schedule to the night before the approvals were scheduled. Although Conway denied any knowledge of key aspects of the sale strategy, the record shows she participated in meetings with the architects of the sale and passed along the correspondence from the regulators to Health Net. The plausible deniability the conspiracy afforded her was her claim that her engagement ended at the time the change of ownership was approved. Consequently, she could claim her involvement ended on April 30, 1999, before the Closing Agreement was drafted by others. The district judge obviously found her testimony to be less than honest and her participation as more than she would admit. We find no error in the district court's granting of Health Net's motion for JNOV and affirm that ruling in this regard.
As for the district court's reduction in punitive damages by 30%, we find the district court failed to use the proper standard of review for a JNOV. Instead of determining whether reasonable persons could reach a contrary decision, she viewed the evidence in the light most favorable to the non-moving party. The district court found Health Net was liable for 70% of the compensatory damages and reduced the punitive damage award in the exact proportion as the reduction in actual damages. The record shows no further evidence was submitted on this issue. In reviewing the punitive damage award for excessiveness, the district judge used no standard other than the one already used by the jury in determining the amount of its punitive damage award. Consequently, we hold that reasonable minds could differ as to the need for a reduction in the punitive damage award and reverse the district court's JNOV in this regard.
In each of the three consolidated district court cases, the district court rendered judgments which cast Health Net with all costs and provided that the amount of the costs would be determined at a subsequent rule to tax costs. The court of appeal, based on its reversal of the district court's liability determinations, cast the Texas and Oklahoma Receivers with a portion of the costs and Health Net with a portion of the costs.
For the foregoing reasons, we rule, as follows:
WEIMER, J., additionally concurs and assigns reasons.
WEIMER, J., additionally concurring.
The court of appeal panel which evaluated this matter engaged in a thorough and exhaustive evaluation of a voluminous record. Although we disagree with the outcome reached by the court of appeal, this decision does not detract from the diligent effort expended by the court of appeal panel.
In Docket Number 499,737, there are 89 volumes of pleadings, including the pleadings filed after consolidation, which will be referred to herein as Vol. # (89), p. #. In Docket Number 509,297, there are 7 volumes of pleadings, which will be referred to as Vol. # (7), p.#. In Docket Number 512,366, there are 5 volumes of pleadings, which will be referred to as Vol. # (5), p. #. The transcripts of hearings and of trial are contained in 20 volumes. The first 19 of those volumes are designated as Vol. # of 19, as the 20th volume was added later as a supplement. The transcripts will be referred to herein as Tr. # (19), p. #, consistently with the manner in which the volumes are marked. The 20th volume of the transcripts will be referred to as Tr. 20(20), p. #, as it is marked. All exhibits will be referred to with their trial exhibit number, as Ex. #.
In addition, this court requested the record be supplemented with certain pleadings filed in the court of appeal and rulings from that court. This information will be referred to herein as Supp. R., with a description of the document.
See Ex. 38, p. 5-7.
In Wooley v. Lucksinger, 2006-1164, 2006-1165, 2006-1156 (La.App. 1 Cir.5/4/07), 961 So.2d 1225, the court of appeal dismissed as moot appeals which related to a preliminary injunction granted Health Net involving the Texas and Oklahoma Receivers and lawsuits proceeding in Texas.
In Wooley v. Lucksinger, 2006-1167, 2006-1168, 2006-1169 (La.App. 1 Cir. 5/4/07), 961 So.2d 1228, the court of appeal affirmed the district court's dismissal of Health Net's third party demand against the La-DOI, asserting a detrimental reliance cause of action, and a cause of action for regulator fault. The court of appeal referred the regulator fault claims to the merits as an affirmative defense.
The additional requirements requested by the La-DOI were the changes to the cancellation procedure and the designation of specific assets to secure the guarantee. As noted in the body of the opinion, the precursor to Health Net rejected the changes proposed by the La-DOI, retaining the 60-day notice provision for cancellation and relying upon the assets of the parent corporation to secure the contract.
This rejection was noted by the court of appeal:
Wooley I, p. 4-5, 7 So.3d at 663.
Since the only changes suggested by the La-DOI were changes to the cancellation procedure and a request that specific assets be designated, and no changes were mentioned with regard to the
Exhibit Envelope 12, Box 2, Transcript of May 9, 2005 hearing, p. 86-87.
The record shows Health Net did file a motion, a little over a week before trial, seeking reconsideration of the district court's choice of law ruling. Vol. 54(89), p. 11465 et seq. However, no writs were taken when the motion for reconsideration was denied with the notation "previously heard." Vol. 55(89), p. 11886 and Vol. 56(89), p. 11971. Moreover, the record shows Health Net's requested reconsideration of this issue was only one of several other pretrial rulings for which Health Net sought reconsideration immediately before trial.
D. Time of taking notice. Judicial notice of the foregoing legal matters may be taken at any stage of the proceeding, provided that before taking judicial notice of a matter in its instructions to the jury, the court shall inform the parties before closing arguments begin.
E. Question for court. The determination of the foregoing legal matters shall be made by the court.
Although the court of appeal cited to this treatise commentary, the ad hoc panel failed to apply its meaning to the instant matter.
Counsel for Health Net: One preliminary matter on our list, your Honor. Has the court had an opportunity to prepare written reasons and conclusions of law in connection with the Louisiana and Oklahoma judgment.
The Court: The final judgment.
Counsel for Health Net: The final judgment, yes, your Honor.
The Court: Yes, but it's not ready yet. The court has had [sic; will have] ample opportunity. As you know the court signed judgment about five days ago. And I have thirty days from the signing to do it. I intend to finish it shortly.
Counsel for Health Net: I just needed to know because we are rolling into some issues that are obviously governed by the judgment. I just wanted to know—
The Court: I noticed when I received it there was a second request. It was denominated second request for written reasons. And I recall when I got the first request it was premature because I hadn't even signed a judgment. So as soon [as] I signed the judgment, I began to work on it. So it will be complete[d] shortly.
Counsel for Health Net. Thank you, your Honor.
Tr. 19(19), p. 3501-02.
Tr. 17(19), p. 3283-3284, 3288.
In Kunzweiler v. Zero.Net, Inc., 2002 WL 1461732 (N.D.Tex.2002), the federal district court in Texas applied Delaware substantive law. Citing Anadarko, the court held the plaintiff was not a stockholder during the relevant time period, but only a potential investor, to whom no fiduciary duties were owed. Id., 2002 WL 1461732 *17.
In In re Mirant Corporation, 326 B.R. 646 (Bankr.N.D.Tex.2005), the federal bankruptcy court in Texas applied Georgia law. The defendants in that case relied on Anadarko and the court held the defendants gave an overly broad reading of Anadarko: "[in Anadarko] the court held that directors of a parent owed no fiduciary duty to prospective shareholders of the subsidiary prior to a spinoff,
In Jackson v. Cherry (In re Cherry), 2006 WL 3088212 (Bankr.S.D.Tex.2006), the federal bankruptcy court in Texas applied Oklahoma substantive law to the claims raised, since the bankruptcy complaint incorporated claims put forth in an earlier action pending in a federal district court in Oklahoma. Since the defendant was a director of the parent corporation, as well as the subsidiaries, the federal bankruptcy court, citing Anadarko, held the defendant would have been breaching his duty as a director to both the parent
In ASARCO LLC v. Americas Mining Corporation, 382 B.R. 49, 69 (S.D.Tex.2007), on reconsideration in part, 396 B.R. 278, 394 n. 133 (S.D.Tex.2008), the federal district court in Texas applied New Jersey or Delaware law to the claim of breach of fiduciary duty raised in that case.
Tr. 17(19), p. 3285-3286.
Although we have expressed our disagreement with some of the district court's specific written reasons filed years after her judgment, we nevertheless note that reasons supporting her factual findings are necessarily and clearly implied by the record, especially her contemporaneously expressed oral reasons for her rulings. We find the district court's judgments were, in large part, based on her contemporaneous credibility determinations and are entitled to deference. Leal v. Dubois, 2000-1285 p. 4-5 (La. 10/13/00), 769 So.2d 1182, 1185.
Tr. 17(19), p. 3281-3282. These jury instructions were devised from jury instructions proposed by the Receivers and Health Net. See Vol. 54, p. 11606-11607 (Receivers' proposed jury instructions) and Vol. 57(89), p. 12205-12206 (Health Net's proposed charges no. 92 and no. 93).
Court: Yes, sir.
Tr. 17(19), p. 3393.
