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In re Liquidation of Indemnity Insurance Corporation, RRG

Court of Chancery of Delaware

December 6, 2018


          Submitted: October 4, 2018

          Christopher P. Simon and Kevin S. Mann, CROSS & SIMON, LLC, Wilmington, Delaware; Attorneys for the Honorable Trinidad Navarro, Insurance Commissioner of the State of Delaware, as Receiver for Indemnity Insurance Company, RRG, in Liquidation

          David S. Eagle and Sally E. Veghte, KLEHR HARRISON HARVEY BRANZBURG LLP, Wilmington, Delaware; Attorneys for Intervening Petitioner Branch Banking & Trust Company

          Jeffrey B. Cohen, Bruceton Mills, West Virginia; Proposed Intervenor



         The founder of an insurance company pled guilty to fraud involving that company and was sentenced to decades in federal prison. This Court placed the company into rehabilitation in 2013, and then into liquidation in 2014. The company consented to those proceedings. Now, the founder has filed his fourth motion to intervene, [1] pro se, to challenge findings from 2014 that the company was insolvent. Although the Court has reviewed the pro se submission leniently, the motion is untimely, fails to assert a valid interest impaired or impeded by the company's continued liquidation, and is precluded by this Court's rulings on previous motions to intervene. For these reasons, the motion is denied.

         I. BACKGROUND

         This matter concerns the liquidation of Indemnity Insurance Corporation, RRG ("IIC") under Delaware's Insurers Liquidation Act.[2] Because the long history of this proceeding is well-documented in previous orders and opinions, this decision sets out only the facts relevant to the motion at hand.[3]

         IIC is a Delaware risk retention group founded by non-party Jeffrey Cohen. As of the date IIC entered liquidation, RB Entertainment Ventures, LLC ("RBE") was the majority stockholder of IIC.[4] Cohen, in turn, controls RBE. In 2013, the Insurance Commissioner of the State of Delaware (the "Commissioner") uncovered troubling evidence of IIC's precarious financial position and years of fraud conducted by Cohen. As a result, the Commissioner initiated delinquency proceedings against IIC under the Insurers Liquidation Act. On April 10, 2014, the Court entered the Liquidation and Injunction Order With Bar Date (the "Liquidation Order"), placing IIC into liquidation.[5]

         On June 24, 2014, federal prosecutors secured an indictment against Cohen for various alleged fraudulent schemes and other criminal activities, including those related to IIC.[6] The operative superseding indictment, issued on December 2, 2014, charged Cohen with thirty-one offenses (the "Criminal Matter").[7] On June 5, 2015, Cohen signed a plea agreement admitting to fraudulent conduct related to IIC.[8] On December 10, 2015, the District Court sentenced him to thirty-seven years in prison.[9]Cohen appealed his convictions and sentences. That appeal was still pending when Cohen filed the current motion to intervene (the "Motion") in early 2018. But on April 25, 2018, the United States Court of Appeals for the Fourth Circuit dismissed portions of Cohen's appeal and affirmed the rulings of the District Court as to the remaining issues.[10]

         According to the Motion, Cohen seeks to intervene in order to assert his Rule 60 Independent Action for Relief from Court Order Based on Fraud on the Court (the "Rule 60 Complaint").[11] The Motion is the fourth request to intervene filed by either Cohen or the entity he controls, RBE.[12] Other than IIC's ongoing liquidation, the current live dispute in this action is a petition for declaratory judgment brought by intervening party Branch Banking & Trust Company ("BB&T") on May 27, 2018, [13] which is set for argument on summary judgment on January 22, 2019, and for trial beginning on May 6, 2019. But Cohen does not seek to intervene in the dispute between the Receiver and BB&T. He instead seeks to reopen and vacate the four-year old Liquidation Order, asserting that he can only protect his interests, including his liberty interest, by contesting the issue of IIC's insolvency.

         A. The Seizure Order And RBE's First Motion To Intervene

         Cohen, through RBE, first attempted to intervene shortly after the initiation of the delinquency proceedings. On May 30, 2013, this Court entered a Confidential Seizure and Injunction Order that authorized the Commissioner to take control of IIC's business and assets.[14] The petition supporting that order alleged a concerning story of Cohen's frauds and IIC's financial strain.[15] On July 16, 2013, following the seizure and review of IIC's books, records, and other assets, the Commissioner filed a Verified Petition for Entry of Liquidation and Injunction Order (the "Initial Liquidation Petition").[16] The Initial Liquidation Petition focused on IIC's unsound financial condition and its hazardous business practices, including Cohen's alleged fraudulent schemes.

         On August 13, 2013, RBE moved to intervene generally on the basis of its majority stockholder status in IIC.[17] Following briefing and argument, on August 22, 2013, the Court ruled that RBE, in its capacity as a stockholder, was unable to intervene permissively or as a matter of right in this proceeding under Court of Chancery Rule 24 (the "First Intervention Ruling").[18] But to limit this action's preclusive effects on RBE or Cohen in other matters, the Court denied the motion without prejudice as to later intervention on direct issues of Cohen's fraud related to IIC, or other direct relief (e.g., RBE's voting rights), and invited a renewed motion to intervene on narrower grounds.[19] The Court specifically foreclosed intervention by RBE on issues of IIC's valuation, solvency, and business viability.[20] RBE and Cohen did not file a renewed motion or appeal the First Intervention Ruling.

         B. The Rehabilitation Order And RBE's Second Motion To Intervene

         On November 6, 2013, the Commissioner petitioned for an order to rehabilitate, rather than liquidate, IIC (the "Rehabilitation Petition").[21] The Commissioner explained that IIC's management and Board had determined that a rehabilitation-or, failing that, a liquidation-of IIC was in the best interests of IIC and its policyholders.[22] RBE moved to intervene a second time.[23]

         On November 7, 2013, the Court placed IIC into rehabilitation, appointed the Commissioner as IIC's Receiver, and denied RBE's motion, ruling that RBE could pursue any claims against IIC's estate in the manner contemplated by the rehabilitation order.[24] On November 8, 2013, Cohen appealed that order and a November 1, 2013, order related to sanctions.[25] On April 9, 2014, the Delaware Supreme Court affirmed both orders.[26]

         C. The Liquidation Order And RBE's Third Motion To Intervene

         Unfortunately, the Receiver could not rehabilitate IIC. On January 16, 2014, the Commissioner filed a second petition for liquidation[27] (the "Renewed Liquidation Petition"), expanding on the Initial Liquidation Petition and the Rehabilitation Petition. The Commissioner sought to liquidate under several independent statutory grounds provided by Delaware's Insurers Liquidation Act.[28]These included that IIC (i) was financially insolvent and impaired, [29] (ii) was in an unsound and hazardous condition to its policyholders, particularly due to Cohen's alleged frauds, [30] (iii) had concealed or removed assets, [31] (iv) had willfully violated Delaware insurance law, [32] (v) had refused to submit certain of its books, records, accounts, or affairs to examination by the Commissioner, again due to Cohen's alleged interference, [33] and (vi) had consented to the liquidation through its Board and management.[34]

         On February 4, 2014, RBE moved to intervene for a third time, attaching a proposed answer to the Renewed Liquidation Petition.[35] The Court denied the motion (the "Third Intervention Ruling").[36] RBE's proposed answer did not contest the detailed allegations establishing various statutory bases for liquidation.[37]Instead, RBE disclaimed knowledge of many of the Renewed Liquidation Petition's allegations, including those related to Cohen's purported frauds, despite the imputation of Cohen's knowledge to RBE.[38] Because RBE's "proposed answer [did] not contest the substance of particularized and verified allegations, supported by documentary evidence, that provide adequate and independent bases for entry of a liquidation order," the Court found that "[g]ranting the motion to intervene at this point would be futile."[39]

         The Court gave RBE ten days to "renew its motion to intervene with a new proposed answer that fairly responds to the substance of the allegations about Cohen's conduct" in the Renewed Liquidation Petition.[40] RBE and Cohen did not renew their motion or file an amended proposed answer.[41] On April 10, 2014, the Court entered the Liquidation Order.[42]

         D. Cohen's Rule 60 Actions And Fourth Motion To Intervene

         On May 19, 2017, Cohen attempted to bring an independent action for fraud on the Court under Rule 60(b) without an accompanying motion to intervene in this proceeding.[43] On August 18, 2017, the Court denied or dismissed Cohen's action because he was not a party to this proceeding, as required to seek Rule 60 relief.[44]

         On February 8, 2018, Cohen filed the Motion and the attached Rule 60 Complaint. The Motion is fully briefed. On October 4, 2018, while the Motion was still pending, this action was reassigned to me.[45]

         II. ANALYSIS

         While the Court reviews Cohen's pro se filings leniently, [46] the Motion suffers from a number of interlocking deficiencies and stands on positions that this Court already rejected when denying RBE's previous motions to intervene. Cohen's Motion must be denied.

         A. Cohen Is Not Entitled To Intervene.

         Rule 24 governs intervention by non-parties. Rules 24(a) and (b) govern intervention of right and permissive intervention, respectively:

(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: (1) When a statute confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
(b) Permissive Intervention. Upon timely application anyone may be permitted to intervene in an action: (1) When a statute confers a conditional right to intervene; or (2) when an applicant's claim or defense and the main action have a question of law or fact in common. In exercising its discretion the Court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.[47]

         As this Court held in the Third Intervention Ruling, "[i]f [the party seeking intervention] is unable or unwilling to raise any litigable dispute, then permitting intervention would be futile."[48]

         1. Cohen's Motion Is Untimely.

         Cohen seeks intervention to vacate a four-year-old liquidation order. Intervention under Rule 24 requires "a timely application," and Cohen has failed to meet that standard.[49] His inexcusable delay in bringing the Motion, coupled with the potential prejudice to parties who have relied for years on the Liquidation Order and its claims administration process, render the Motion untimely.

         Although Delaware law provides no bright-line rule for timeliness under Rule 24, "[t]he most important consideration in deciding whether a motion for intervention is untimely is whether the delay in moving for intervention will prejudice the existing parties to the case."[50] "Timeliness is a fact specific analysis that rests in the sound discretion of the trial court."[51] "The court should consider two factors on a sliding scale: the inexcusableness of the delay and the prejudice to existing parties."[52] "If the delay is inexcusable, disruption to the schedule is reason enough to deny intervention."[53] Delays of even a few months can be untimely.[54]

         When analyzing a delay under Rule 24, "[a] key factor is whether the potential intervenor 'was in a position to seek intervention at an earlier stage in the case.'"[55] The Liquidation Order was entered in 2014. While a few allegations in the Rule 60 Complaint relate to conduct from 2017, [56] most are based on conduct from years earlier. During the intervening years, the Court gave RBE, which Cohen controls, multiple opportunities to renew defective motions to intervene.[57] Cohen and RBE did not do so. The Court extended its most recent invitation for a renewed motion to intervene in 2014.[58] Nearly four years passed before Cohen filed the Motion. Cohen's delay is inexcusable.[59]

         Cohen's intervention would also severely prejudice the parties and non-parties affected by IIC's liquidation. Cohen requests an evidentiary hearing in support of vacating the four-year-old Liquidation Order. IIC consented to that order, and the Commissioner-now Receiver-has been implementing it for years. In that process, IIC's creditors and policyholders have been submitting claims to the Receiver to assert and settle their rights. Reopening the long-closed solvency proceedings at the heart of this action would interrupt those efforts and prejudice both the Receiver and third parties operating under the Liquidation Order.

         The Receiver and IIC's creditors and policyholders are already deep into the claims administration process under Delaware's Insurers Liquidation Act and the Liquidation Order. "The object to be attained by the liquidation of an insolvent insurance company is the orderly and equitable apportionment among creditors of losses that may result and to ensure the equitable distribution of an insolvent debtor's property or assets among creditors."[60] To that end, the Liquidation Order set a January 16, 2015, bar date for the filing of certain proofs of claims ("POCs") against the IIC estate.[61] According to the Receiver's most recent accounting filed in this action (the "Third Accounting"), as of December 31, 2017, [62] the estate received POC forms asserting 2, 944 claims, with an aggregate value of $1, 084, 264, 323.[63] Of those POCs, the majority-1, 932-are claims by policyholders, with an aggregate value of $578, 844, 266.[64]

         The Receiver continues to evaluate those POCs. In 2017, as detailed in the Third Accounting, the Receiver reviewed and made final determinations as to 1, 244 policyholder claims, with an asserted total value of $44, 536, 632.[65] The Receiver stated that, as of August 31, 2018, 1, 718 notices of determination were mailed to POC claimants, representing an aggregate value of $61, 097, 694.[66] These notices present the Receiver's initial valuation and assignment of claim priority, which the claimant may object to or accept.[67] The Receiver and claimants alike depend on the POC process to assert and resolve claims against IIC's estate.[68] Cohen's intervention would reverse headway in the POC process, years after the bar date, by imposing an evidentiary hearing on the long-closed solvency questions.

         Disrupting the progress in a liquidation proceeding creates particular prejudice.[69] Liquidation is meant to distribute an entity's scarce assets among its creditors.[70] The Receiver has already been forced to devote a significant amount of IIC's limited assets to defending or monitoring various litigations, a number of which involve Cohen or RBE.[71] Imposing an additional evidentiary hearing on settled issues, contested only by Cohen, would force the Receiver to further drain the pool of IIC's assets, ultimately prejudicing the claimants. The intervention would also disrupt the only live adversarial dispute in this proceeding at the moment: intervenor BB&T's request for declaratory relief as to the status of certain assets and how they relate to the IIC estate, which is currently scheduled for a summary judgment hearing and trial in the first half of 2019.[72] For all these reasons, Cohen's requested relief bears a significant risk of prejudicing the Receiver, IIC's estate, the claimants, and intervening party BB&T.

         Because the Motion follows years of inexcusable delay and seeks to vacate the long-settled Liquidation Order establishing the rights of IIC and its creditors and policyholders, I conclude the Motion is untimely.[73]

         2. Cohen Has Not Claimed An Impaired Or Impeded Interest In The Action.

         Even if Cohen's request were timely, he has failed to claim a valid interest in this action that has not been foreclosed as grounds to intervene by the Delaware Supreme Court, this Court, or the United States Court of Appeals for the Fourth Circuit. Rule 24(a) requires that a party seeking intervention must claim "an interest relating to the property or transaction which is the subject of the action," and must be "so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties," absent a statutory right to intervene.[74]"On a motion to intervene, a party need only claim, rather than prove, an interest in the subject of the litigation."[75] But not all interests are sufficient to justify intervention.[76] For instance, a stockholder with merely derivative interests will generally not satisfy the Rule 24(a) test.[77]

         Cohen alleges a handful of interests to justify intervention: (i) an ownership interest that "represents 99% of the ownership of IIC (39.5% [] owned personally, and the other 59.4% [] owned by Cohen's owned entity), "[78] (ii) liberty interests, (iii) property interests, (iv) contractual interests, and (v) reputational interests.[79] All of them purportedly inspire his attempt to intervene and pursue the relief sought in the Rule 60 Complaint. Most of Cohen's interests are alleged in a conclusory fashion, without support or explanation. Cohen focuses on his property and contractual interests, his purported direct equity interest, and, "[m]ost importantly, his liberty interest."[80] Between rulings from the Delaware Supreme Court, this Court, and the United States Court of Appeals for the Fourth Circuit, these interests have already been rejected as a basis for Cohen to intervene.

         Cohen's property and contractual interests are rooted in his desire to avoid personal liability that may result from the Receiver's alleged mismanagement of IIC.[81] Cohen does not specify any impending sources of such liability.[82] Further, the Delaware Supreme Court has already concluded in a similar context that Cohen's personal property interests do not permit him to interfere with these proceedings. Weighing the propriety of discovery into other entities Cohen owns, the Supreme Court ruled that "[a]ny impairment to Cohen's property interests [in his business entities] is decisively outweighed by the important public interest in ensuring that the Commissioner could exercise control over [IIC] and protect the interests that were the subject of the Insurers Liquidation Act."[83] I conclude that Cohen's claimed property and contractual interests do not entitle him to police IIC's statutory liquidation.

         Cohen also seeks to intervene to protect his purported equity interest in IIC.[84]Even assuming that Cohen is an IIC stockholder, [85] this Court held in the First Intervention Ruling that RBE, as a mere IIC stockholder, is not able to intervene as a matter of right in this action on the basis of its equity interest.[86] That holding applies with equal force to Cohen's equity interests, which Cohen claims he obtained through the Stock Purchase.[87] The First Intervention Ruling precludes Cohen from intervening on the basis of his equity interest in IIC.

         Finally, as for Cohen's liberty interest, Cohen contends that his freedom from incarceration "hinges on the same questions of law and fact that lie at the heart of this matter," and that the Rule 60 Complaint asserts "parallel" issues to his Criminal Matter.[88] Although Cohen's appeals in his Criminal Matter were pending when he filed the Motion, the United States Court of Appeals for the Fourth Circuit affirmed the District Court on April 25, 2018.[89] Accordingly, his liberty interests as defined by the Criminal Matter are settled and do not justify intervention to contest IIC's insolvency.[90]

         Cohen has not carried his burden to demonstrate how the continued implementation of the Liquidation Order impairs or impedes any of his claimed interests. The Motion fails to satisfy Rule 24(a).[91]

         3.Cohen Seeks Intervention Only On Foreclosed Solvency Issues, And Does Not Challenge Other Independent Statutory ...

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