Matter of McFerrin-Clancy v Insurance Dept. of the State of N.Y.

[*1] Matter of McFerrin-Clancy v Insurance Dept. of the State of N.Y. 2009 NY Slip Op 52257(U) [25 Misc 3d 1223(A)] Decided on October 19, 2009 Supreme Court, New York County Tolub, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 19, 2009
Supreme Court, New York County

In the Matter of the Application of John J.D. McFerrin-Clancy, pursuant to Article 78 of the CPLR, Petitioner,

against

Insurance Department of the State of New York, FINANCIAL GUARANTY INSURANCE COMPANY, FGIC UK LIMITED and CALYON, Respondents.



106591/09



ATTORNEYS FOR THE DEFENDANTS :

NEW YORK STATE INS. DEPT. - Prose

25 BEAVER STREET

NEW YORK, NY 10004

Lea Haber Kuck

Gregory A. Litt

SUDDEN, ARPS, SLATE, MEAGHER &

FLOM LLP

Four Times Square

New York, New York 10036

(212) 735-3000

Attorneys for Respondent Calyon

Seema A, Misra

STROOCK & STROOCK & LAVAN LLP

180 Maiden Lane

New York, NY 10123

Walter B. Tolub, J.

Petitioner commenced this proceeding seeking an order requiring the Insurance Department of the State of New York ("Insurance Department") to produce records requested in Petitioner's Freedom of Information Law ("FOIL") and New York Public Officers Law ("POL") requests.

[*2]Facts

Petitioner is an attorney and member of the firm Lowenstein Sandler, PC.

The Insurance Department is an administrative agency responsible for supervising and regulating insurance business in the State of New York.

Financial Guaranty Insurance Company (FGIC NY) is a New York insurance company. FGIC UK Limited ("FGIC UK" and together with FGIC NY "FGIC")is a British insurance company. FGIC provides financial guaranty insurance and other forms of credit enhancement for public finance and structured financial obligations. FGIC provides financial guaranty insurance to insurers of debt that enables them to lower their cost of borrowing. Because FGIC is only authorized to write one kind of insurance (financial guaranty insurance) it is often referred to as a "monoline" insurer. FGIC NY is regulated by the Insurance Department. As a result of the faltering financial markets, FGIC has sustained substantial losses and is currently not writing new insurance policies.

Respondent Calyon is a French investment bank.

By this Petition, Petitioner seeks, what Respondents claim is, protected highly confidential proprietary information, stemming from FGIC and Calyon's settlment of claims against each other in a separate action.

On March 10, 2008, FGIC commenced an action against Calyon, Havenrock II, Ltd., IKB Deutsch Industriebank AG ("IKB") and IKB Credit Asset Management in the Supreme Court of the State of New York, Commercial Division (600704/08) (the "Action"). The Action related to a June 2007 commitment agreement (Commitment Agreement) between FGIC UK and Havenrock II, Ltd., a special purpose vehicle created by IKB. Subject to the terms of the Commitment Agreement, FGIC UK agreed to issue a financial guaranty policy for up to $1.875 billion of high-grade and mezzanine collateralized debt obligations of asset backed securities contained in a $2.5 billion reference portfolio. Calyon was a third-party beneficiary with respect to certain FGIC UK obligations under the Commitment Agreement. Calyon had also entered into certain credit default swaps with Havenrock II Ltd., whereby Calyon had purchased credit protection with respect to the same securities referenced in the reference portfolio.

On August 25, 2008, FGIC and Calyon entered into a Deed of Settlement (the "Settlement") agreeing not to pursue actual or potential claims that they may have against each other in connection with the Commitment Agreement and the Havenrock II, Ltd., transaction. As consideration for the Settlement, $200 [*3]million was paid by FGIC to Calyon [FN1].

The Settlement involved an inter-company transaction between FGIC NY and FGIC UK, and thus, New York Insurance Law mandated that FGIC notify its regulator, the Insurance Department, of the Settlement and provide related information to establish that the terms of the transaction were fair and equitable (Insurance Law §1505).

When the documents were turned over to the Insurance Department, FGIC asked that the Insurance Department keep the Settlement terms and related material confidential pursuant to Insurance Law §1504. Additionally, FGIC requested that, pursuant to Public Officers Law §89(5)(a)(1), the Settlement documents be exempt from disclosure under Public Officers Law §87(2)(d) because the material contained trade secrets and commercial information which, if disclosed, would cause injury to FGIC's competitive position.

After receiving the FGIC submission, the Insurance Department informed FGIC that it should execute the Deed of Settlement and perform its obligations thereunder and that all information would remain confidential.

Petitioner, who represents IKB, a non-settling party in the Action, then submitted a FOIL request seeking all documents and records relating to the settlement between FGIC and Calyon. The Insurance Department substantially denied the request and produced letters informing FGIC to enter into the Deed of Settlement [but even these letters were redacted](Petitioner Ex. 4). All other information related to the terms of the Settlement were not turned over.

By letter dated February 18, 2009, Petitioner appealed the Insurance Department's decision denying his FOIL request (Petitioner Ex. 5). By letter dated March 4, 2009, the Insurance Department denied Petitioner's appeal (Petitioner Ex. 6).

Petitioner now seeks a reversal of the Insurance Department's decision to maintain the confidentiality of the FGIC Settlement information. Petitioner argues that the Insurance Department is withholding responsive records which are not exempt from disclosure.

Discussion

Insurance Law § 1505 requires that transactions between a domestic controlled insurer and any person in its holding company system be approved by the Superintendent of Insurance. As such, in connection with the Settlement, FGIC was required to file an application for transaction approval with the Insurance Department. The letters/application to the Insurance Department [*4]requested, inter alia, that the Superintendent approve the overall settlement and the transfer of $130 million from FGIC NY to FGIC UK so that Calyon could be paid $200 million in consideration for settling outstanding litigation (Ins. Dept. Ex. D)[FN2].

FGIC also requested that the information be kept confidential in accordance with Insurance Law §1504[c] and POL § 87(2)(d).

According to the Insurance Department, the documents submitted consist of: (1) the Deed of Settlement between FGIC and Calyon; (2) requests for approval between FGIC and the Insurance Department and terms of the deal; (3) non-public FGIC financial information and analysis; (4) FGIC strategic plans; and (5)un-redacted materials filed under seal in litigation (Lees Aff. ¶44).

POL §87(2)(a) and (d)

Under the Freedom of Information Law, all government records are presumptively open for public inspection and copying unless they fall within one of the enumerated exceptions (Sanders v. Bratton, 278 AD2d 10 [1st Dept 2000]). Exemptions from disclosure under FOIL are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for the exemption (Id.; Daily Gazette Co. v. City of Schenectady, 93 NY2d 145 [1999]).

New York's FOIL statute provides that an agency, such as the Department of Insurance, may deny access to records that fall within the specifically enumerated exceptions in POB §87(2).

The Insurance Department denied Petitioner access to the records requested based on two POL exceptions.

First, POB §87(2)(a) ("Statutory Exemption") which provides for an exemption of all records and documents which "are specifically exempted from disclosure by state or federal statute" (POB §87(2)(a)). [*5]

Second, POB §87(2)(d)("Competitive Exemption") which provides an exemption for documents which "are trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from a commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the subject enterprise" (POB §87(2)(d)).

Statutory Exemption

Under the Statutory Exemption, the Insurance Department is not obligated to give the public access to records that are exempted by a state or federal statute (POB §87(2)(a)). The State statue does not have to expressly state that it is intended to establish a FOIL exemption, so long as there is clear legislative intent to establish and preserve confidentiality (Wm J. Kline & Sons Inc. v. County of Hamilton, 235 AD2d 44 [3d Dept 1997]).

Respondents argue that here, disclosures made to the Insurance Department are statutorily exempted and are confidential pursuant to Insurance Law §1504[c].

Insurance Law §1504[c] provides:

The superintendent shall keep the contents of each report made pursuant to this article and any information obtained in connection therewith confidential and shall not make the same public without the prior written consent of the controlled insurer to which it pertains unless the superintendent after notice and opportunity to be heard shall determine that the interests of policyholders, shareholders or the public will be served by the publication thereof. In any action or proceeding by the superintendent against the person examined or any other person within the same holding company system a report of such examination published by him shall be admissible as evidence of the facts stated therein.

(Insurance Law §1504[c]).

Here, FGIC was required to provide the Insurance Department with the notice of Settlement under Insurance Law §1505. FGIC did not and does not consent to the information being produced. Such submissions are protected by Insurance Law §1504[c] unless the superintendent believes that there was a strong public policy to make the documents available. In the event that the superintendent seeks to make the documents public, a hearing must be conducted. In this case, no hearing was conducted indicating that the superintendent did not see an overriding public policy interest in making the documents public. In fact, by citing POL §87(2)(d), the Insurance Department indicates that disclosure of these documents would cause substantial injury to Respondents competitive position.

As such, any documents relating to the Deed of Settlement, including correspondence regarding the confidential information, is exempt under POL §87(2)(a) vis a vis Insurance Law §1504[c]. [*6]

As the documents are exempt under POB § §87(2)(a), the Court need not address whether it is also exempt under POB §87(2)(d).

Accordingly, it is

ORDERED that the Petition is dismissed; and it is further

ORDERED that the Clerk of the Court enter judgment accordingly.

This memorandum opinion constitutes the decision and order of the Court.

Dated:

___________________________

HON. WALTER B. TOLUB, J.S.C. Footnotes

Footnote 1:An order dismissing the Action on the grounds of forum non-conveniens under CPLR 327 was entered on January 5, 2009.

Footnote 2:The letters stated that FGIC UK was a party to the Commitment Agreement with Havenrock II, a special purpose vehicle sponsored by IKB. IKB through Havenrock, bundled together groups of asset backed securities into new securities. IKB then sold the new securities to Calyon. Under the terms of the Commitment Agreement, FGIC UK agreed to issue a master financial guaranty policy indemnifying Calyon for Havenrock's obligations under contracts with Calyon. According tot he FGIC letters, when the asset back securities held by Calyon defaulted, FGIC UK's exposure under the master financial guaranty policy could have been $1.875 billion (Affirmation of Martha A. Lees ("Lees Aff.") [Deputy General Counsel in the Office of General Counsel] in Opp. to Petition ¶15).