MID-AMERICA INVESTMENT AND INSURANCE TRUST v. ELIZABETH P. WRIGHT, COMMISSIONER, KENTUCKY DEPARTMENT OF INSURANCE; BENEFAX CORPORATION; NATIONAL BENEFIT ADMINISTRATION, INC.; AND NATIONAL BUSINESS ASSOCIATION TRUST
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RENDERED: MARCH 23, 2001; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-002454-MR
MID-AMERICA INVESTMENT AND INSURANCE TRUST
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NO. 90-CI-01207
v.
ELIZABETH P. WRIGHT, COMMISSIONER,
KENTUCKY DEPARTMENT OF INSURANCE;
BENEFAX CORPORATION; NATIONAL BENEFIT
ADMINISTRATION, INC.; AND NATIONAL
BUSINESS ASSOCIATION TRUST
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, COMBS, AND DYCHE, JUDGES.
DYCHE, JUDGE:
Mid-America Investment and Insurance Trust appeals
from an order of the Franklin Circuit Court determining that it
is a single identity with the National Business Association Trust
(NBAT), an entity placed into liquidation in June 1991 pursuant
to a motion by the Kentucky Department of Insurance.
The trial
court’s order further directs that the assets of Mid-America
Investment and Insurance Trust be placed into liquidation under
the terms of the June 1991 order, and that its assets, including
a $100,000.00 certificate of deposit (CD), be transferred into
the liquidation estate of NBAT.
Because the trial court’s
determination that Mid-America Investment and Insurance Trust is
a single identity with NBAT was not clearly erroneous, we affirm.
On August 1, 1982, the Mid-America Soft Drink Bottling
Trust (Bottling Trust) was created.
The trust originally
operated as a health insurance trust for employees in the soft
drink bottling industry and had relatively few participants.
As
of July 31, 1984, the financial statements of the Mid-America
Soft Drink Bottling Trust reported, among other things, a CD in
the amount of $200,000.00.
On August 1, 1984, appellant Mid-
America Investment and Insurance Trust was created for the
purpose of writing short-term disability benefits for employees
of participating companies who were disabled by sickness or
accident.
Doug Walsh was the Fund Manager for both the Bottling
Trust and Mid-America Investment and Insurance Trust.
On October 22, 1984, Walsh split the aforementioned
$200,000.00 CD held by the Bottling Trust into two $100,000.00
CDs; one of the CDs was placed into an account belonging to the
Bottling Trust, and the other was placed into a Mid-America
Investment and Insurance Trust account.
Eventually, on February
6, 1989, the $100,000.00 Mid-America Investment and Insurance
Trust CD was rewritten and moved into a new account with a new
account number.
The assets of Mid-America Investment and
Insurance Trust, it appears, consist almost entirely of the
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$100,000.00 CD, now grown to approximately $130,000.00,
transferred to it in 1984 by the Bottling Trust.
On July 24, 1987, by a written Trust Agreement, the
Bottling Trust was reformed into the National Business
Association Trust (NBAT).
It appears that, in substance, the
reformation amounted to a name change.
Subsequently, National
Benefit Administrators, Inc. (NBA), was incorporated.
NBA
thereafter entered into a contract with NBAT to manage
substantially all aspects of NBAT’s insurance operations.
On June 1, 1990, due to the financial problems with the
operation of NBAT by NBA, the Department of Insurance obtained a
seizure order pursuant to KRS 304.33-120.
The seizure order
granted the Department control over all assets and records of
NBAT.
NBAT ceased doing business with approximately 4.6 million
dollars in outstanding benefit claims and $700,000.00 in assets.
On July 27, 1990, the Kentucky Department of Insurance
filed an action in Franklin Circuit Court seeking liquidation of
NBAT and NBA.
The action alleged, among other things, that NBAT
was operating as an unauthorized insurer; NBAT was or was about
to become insolvent; and that assets were wrongfully diverted
from NBAT to NBA.
The action also sought relief against BeneFax
Corporation, a company formed following the seizure, and which
received by transfer various NBAT and NBA assets and which,
further, was apparently formed to perform substantially the same
functions formerly performed by NBA.
On June 20, 1991, the trial court entered an order
directing the liquidation of NBAT; naming the Commissioner of the
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Department of Insurance as the liquidator (Liquidator);
authorizing and directing the Liquidator to take possession of
the property of NBAT; and vesting the Liquidator with title to
all property, contracts, rights of action, books, and records of
NBAT, wherever located.
This court affirmed in an unpublished
opinion rendered March 5, 1993.
On May 10, 1995, upon motion of the Liquidator, the
trial court entered an order directing the liquidation of NBA.
The trial court determined NBA and NBAT to be a single entity and
placed NBA under liquidation pursuant to the terms of the June
20, 1991, order liquidating NBAT.
On July 24, 1997, the trial
court entered an order consolidating the assets of NBA and NBAT
into a single estate for liquidation purposes.
On July 13, 1999, the Commissioner of the Department of
Insurance, as Liquidator of NBA and NBAT, filed a “Motion for
Declaration of Rights and Turnover of Assets.”
The motion sought
to, alternatively, (1) have Douglas C. Walsh and Citizens
National Bank turn over in excess of $130,000.00 in funds held in
the name of Mid-America Investment and Insurance Trust to be a
part of the liquidation estate of NBAT/NBA, or (2) to declare
Mid-America Investment and Insurance Trust a single identity with
NBAT.
Thereafter,
Mid-America Investment and Insurance Trust,
by counsel, entered what it termed “a special entry of
appearance” and filed a reply in opposition to the motion.
On September 7, 1999, a hearing was held, and on
September 13, 1999, the trial court entered an order determining
Mid-America Investment and Insurance Trust and NBAT to be a
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single entity and ordering that the assets of Mid-America
Investment and Insurance Trust be transferred to the liquidation
estates of NBAT/NBA.
This appeal followed.
First, Mid-America Investment and Insurance Trust
contends that the trial court lacked jurisdiction over the person
of Mid-America Investment and Insurance Trust and over the
subject matter of the proceeding against Mid-America Investment
and Insurance Trust.
In its August 23, 1999, response to the Insurance
Commissioner’s motion, Mid-America Investment and Insurance Trust
identified itself as a “non-party to this action” and stated that
it was making a “special entry of appearance . . . for the
purpose of resisting the motion of the Liquidator[.]”
Mid-
America Investment and Insurance Trust did not, however, present
specific jurisdictional arguments in the body of its reply; it
responded to the Insurance Commissioner’s arguments on the merits
and filed a countermotion requesting that the trial court release
its frozen assets.
Civil Rule 12.02 provides, in part, that
Every defense, in law or fact, to a claim for
relief in any pleading . . . shall be
asserted in the responsive pleading thereto
if one is required, except that the following
defenses may at the option of the pleader be
made by motion: . . .(b) lack of jurisdiction
over the person . . . .
Additionally, CR 12.08(1) states as follows:
A defense of lack of jurisdiction over the
person, improper venue, insufficiency of
process, or insufficiency of service of
process is waived (a) if omitted from a
motion in the circumstances described in Rule
12.07, or (b) if it is neither made by motion
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under Rule 12 nor included in a responsive
pleading or an amendment thereof permitted by
Rule 15.01 to be made as a matter of course.
First, while Mid-America Investment and Insurance Trust
did, in its reply, identify itself as making a “special
appearance,” the distinction between the "general" and the
"special" appearance has been eliminated by the Rules of Civil
Procedure.
First Nat. Bank of Cincinnati v. Hartmann, Ky. App.,
747 S.W.2d 614, 615 (1988).
Second, Mid-America Investment and
Insurance Trust did not, in its reply or subsequent motion,
comply with CR 12.02 by specifically asserting defenses based
upon lack of personal jurisdiction.
Third, the Mid-America
Investment and Insurance Trust engaged in extensive discovery
proceedings as well as litigating the action on its merits.
An
appearance has generally been found when a defendant has so
participated in the action as to indicate an intention to defend.
Smith v. Gadd, Ky., 280 S.W.2d 495 (1955).
Consequently, it
cannot now argue that the trial court had no jurisdiction over
it.
Williams v. Indiana Refrigerator Lines, Inc., Ky. App., 612
S.W.2d 350, 351 (1981) (citations omitted).
As to subject matter jurisdiction, without question,
the Franklin Circuit Court has subject matter jurisdiction over
this sort of insurance litigation.
See KRS 304.33-040(3)(a); KRS
304.33-030(13).
Next, Mid-America Investment and Insurance Trust
contends that the trial court erred in determining that it is a
single identity with NBAT.
In its September 13, 1999, order the
trial court stated, “[i]t is hereby determined, based upon the
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record before the Court, that the Mid-America Investment and
Insurance Trust and National Business Association Trust is a
single identity[.]”
We agree.
Article II, Section 2, of the “Agreement and
Declaration of Trust” creating Mid-America Investment and
Insurance Trust states, in part, that
The Trust is hereby created for the purpose
of holding all assets of the Plan for the
benefit of the participating employees in
accordance with the provisions of the Plan.
In the event it ever develops that there are
insufficient funds to cover the benefits
prescribed by the Plan, or the funds shall be
insufficient to meet the then obligations,
the monies available shall be pro-rated and
used for the benefits of the Employees or
beneficiaries[.]
The term “Plan” as used in Article II, Section 2, is defined in
Article I, Section 6, as follows:
The term “Plan” as used in this Agreement
shall mean an employee benefit plan or plans
adopted by the Employer to provide for the
benefit of the Employees, group life, group
accident & health, and dental insurance on
such Employees, requiring use of the Trust
for the funding and the payment of Plan
benefits, and shall be called “the MidAmerica Soft Drink Bottling Benefit Plan,”
hereinafter referred to as “the M.A.S.D.B.
Benefit Plan.”
The Agreement and Declaration of Trust creating NBAT
contains, in every respect and particular, identical language in
its respective Article I, Section 6, and Article II, Section 2,
provisions.1
In summary, together these sections define the
1
The same is true of the Agreement and Declaration of Trust
creating NBAT’s predecessor, the Mid-America Soft Drink Bottling
Trust.
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purpose of Mid-America Investment and Insurance Trust and NBAT as
sharing the common purpose of having been created for the purpose
of holding the assets of the Mid-America Soft Drink Bottling
Benefit Plan.
Further, it appears undisputed that the original source
of the approximately $130,000.00 primarily at issue in this case
was by means of a transfer of a $100,000.00 CD from NBAT’s
predecessor, the Bottling Trust, to Mid-America Investment and
Insurance Trust in October 1984.
Had that transfer, which was
without any apparent consideration, not occurred, it follows that
when the Bottling Trust was reformed into NBAT, the CD funds
would have transferred into an NBAT account.
It further follows
that when the assets of NBAT were ordered to be transferred to
the Liquidator, the CD would have been included within the assets
transferred to the Liquidator.
In consideration (1) that the original source of the
$130,000.00 CD at issue was, in effect, NBAT (the successor
company of the Bottling Trust, the “actual” source); (2) that
Mid-America Investment and Insurance Trust and NBAT were created
for the common purpose of holding the assets of the Mid-America
Soft Drink Bottling Benefit Plan; and (3) that Article II,
Section 6, of both trusts provide that “[i]n the event it ever
develops that there are insufficient funds to cover the benefits
prescribed by the Plan, or the funds shall be insufficient to
meet the then obligations, the monies available shall be prorated and used for the benefits of the Employees or
beneficiaries,” we conclude that NBAT and Mid-America Investment
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and Insurance Trust are, in reality, a single entity.
We are
persuaded that the trial court’s findings were not clearly
erroneous, and that it did not abuse its discretion in that
determination.
Finally, Mid-America Investment and Insurance Trust
contends that the Kentucky Department of Insurance’s speculation
regarding appellant’s future is not grounds for use of MidAmerica Investment and Insurance Trust funds in NBAT’s
liquidation.
However, based upon our conclusion that the trial
court correctly concluded that the Mid-America Investment and
Insurance Trust and NBAT is a single entity, the disposition of
this issue is moot.
We will therefore not address it.
The judgment of the Franklin Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Donald Duff
Frankfort, Kentucky
Greg E. Mitchell
Thomas G. Grace
Andrew W. Green
Lexington, Kentucky
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