National Council on Compensation Insurance, Inc. v. American International Group, Inc. et alMEMORANDUMN.D. Ill.July 29, 2010 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION AMERICAN INTERNATIONAL GROUP, INC., et al. Plaintiffs, v. ACE INA HOLDINGS INC., et al. Defendants. ) ) ) ) ) ) ) ) ) ) Case No. 07 CV 2898 Judge Robert W. Gettleman Magistrate Judge Sidney I. Schenkier THE POOL’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR RECONSIDERATION OR HEARING PURSUANT TO FEDERAL RULE OF EVIDENCE 201(E) Defendant National Workers Compensation Reinsurance Pool (“NWCRP” or “the Pool”), by its attorneys, submits this memorandum of law in support of its motion for reconsideration of the portions of the Court’s Memorandum Opinion and Order dated June 30, 2010, in which this Court denied NWCRP’s motion to dismiss all claims asserted against it in AIG’s Corrected First Amended Complaint. (Docket Entry 649 at 16-17) (the “Opinion”). This Court sua sponte took judicial notice that “the NWCRP became the National Workers Compensation Reinsurance Association” (“NWCRA” or “the Association”) on January 1, 2010. (Opinion at 16-17) The Court further ruled that this judicially noticed “fact” mooted the NWCRP’s argument in support of dismissal: that it is not an entity capable of being sued and that AIG is estopped from arguing otherwise. (Id.) The Pool does not dispute that a new corporation called the NWCRA was organized and that it commenced overseeing reinsurance of risks arising on and after January 1, 2010 under various state residual market plans. But the Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 1 of 35 PageID #:12250 2 NWCRP did not “become” the NWCRA, and this Court’s conclusion to the contrary is an error both of fact and of law.1 The NWCRA is a not-for-profit corporation, separate and distinct from the contractual arrangement known as the NWCRP. The NWCRA was organized to oversee only the reinsurance of residual market risks arising on and after January 1, 2010 under state Workers Compensation Insurance Plans that are authorized by the NWCRA Board of Directors. This reinsurance arrangement overseen by the NWCRA was filed with and approved by state insurance regulators as expressly set forth in Section 2 of the NWCRA’s Bylaws: Commencing on January 1, 2010, these Bylaws shall be applicable to each Authorized Insurance Plan for terms of three (3) calendar years, unless action is taken pursuant to Article V, Section 8. A true and accurate copy of the NWCRA Bylaws is attached as Ex. A. The NWCRP continues to be responsible for overseeing reinsurance of risks arising prior to policy year January 1, 2010 under state Workers Compensation Insurance Plans that were previously authorized by the NWCRP Board of Governors. The NWCRP participating companies amended Section 2 of Article II of the NWCRP Articles of Agreement to reflect this fact: Notwithstanding anything to the contrary, these Articles of Agreement shall not be applicable to any Insurance Plan's or Authorized Insurance Plan’s calendar year incepting after the Insurance Plan’s or Authorized Insurance Plan’s state regulator has approved the reinsurance mechanism governed by the National Workers Compensation Reinsurance Association NFP. Consequently, the NWCRP was and still is the contractual arrangement for the run off of policy years 1970 through and including 2009. In other words, the contractual arrangement 1 This issue has potential ramifications beyond this case. The public, and other potential future litigants, should not have any misperception that the NWCRA is somehow the legal successor to the NWCRP. This motion for reconsideration is intended, at least in part, to make sure the record is clarified appropriately. Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 2 of 35 PageID #:12251 3 known as the NWCRP continues to this day. It was not merged into or acquired by or otherwise subsumed by the NWCRA. It did not transfer any assets or liabilities to the NWCRA. As noted above, this arrangement was filed with and approved by insurance regulators in various states. NCCI, in its capacity as Administrator, filed the NWCRA’s Bylaws and related documents with these insurance regulators and explained that the new corporation would oversee the reinsurance of risks arising under the Workers Compensation Insurance Plans for policy years 2010 and subsequent years, but the 2009 and prior policy years would be handled under the existing NWCRP governance and oversight structure. This means that for 2009 and prior policy years, the existing NWCRP Articles of Agreement, the NCCI/NWCRP Administration Agreement, and all procedures and rules that currently govern the operation and administration of the reinsurance agreements did not change. The NWCRP is mindful that “‘[t]his Court’s opinions are not intended to be mere first drafts,’” and that reconsideration is an exceptional remedy that is warranted only in exceptional circumstances. The Majestic Star Casino, LLC v. Trustmark Ins. Co., 667 F. Supp. 2d 809, 821- 22 (N.D. Ill. 2009) (quoting Quaker Alloy Casting Co. v. Gulfco Indus., Inc., 123 F.R.D. 282, 288 (N.D. Ill. 1998)). However, it is appropriate to seek reconsideration when, as here, the Court “has made a decision outside the adversarial issues presented ... by the parties.” United States v. Funds in the Amount of Three Hundred Fourteen Thousand Nine Hundred Dollars ($314,900.00), No. 05 C 3012, 2006 WL 794733, at *1 n.1 (N.D. Ill. Mar. 21, 2006) (internal quotation omitted). Accordingly, the NWCRP requests that the Court withdraw its judicial notice and reconsider the Pool’s argument – that AIG’s claims against it should be dismissed because the Pool is not an entity that can be sued – based on the arguments, authority and material the parties actually submitted. Alternatively, NWCRP requests an opportunity to be heard pursuant to Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 3 of 35 PageID #:12252 4 Federal Rule of Evidence 201(e) so that it can present evidence demonstrating that NWCRA is an entirely separate legal entity from the NWCRP. I. THE NWCRP DID NOT “BECOME” THE NWCRA. The Court correctly noted in its Opinion that neither party brought the incorporation of the NWCRA to the Court’s attention. (Opinion at 17) We presume that AIG did not bring the fact of NWCRA’s incorporation to the Court’s attention for the same reason that the NWCRP did not: the formation of the NWCRA has absolutely no bearing on the Pool’s motion to dismiss.2 The NWCRA did not commence overseeing any reinsurance of residual market risks under authorized insurance plans until January 1, 2010. The allegations against the NWCRP in AIG’s Corrected First Amended Complaint (Docket Entry 502) have nothing to do with the governance or oversight of the residual market reinsurance for 2010 and subsequent policy years, but rather concern earlier years that are now in run off. Up until the end of policy year 2009, the NWCRP reinsurance arrangement provided reinsurance for the residual market risk plans in a number of jurisdictions (that varied from year to year). Nat’l Council on Compensation, Inc. (“NCCI”), Residual Market Management Summary 2009 at 6, https://www.ncci.com/Documents/RM-Mgmt-Summary-2009.pdf. By contrast, the NWCRA commenced overseeing reinsurance of risks arising out of authorized residual market plans effective January 1, 2010. Id. As of January 1, 2010, the NWCRA took governance of Policy Year 2010 and subsequent quota share reinsurance agreements. Id. The NWCRP, on the other hand, continues to operate as the contractual arrangement of the participating companies for all policy years prior to 2010. 2 AIG, as a participating company in the NWCRP, was fully informed about the incorporation of the NWCRA. Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 4 of 35 PageID #:12253 5 As a distinct corporation, the NWCRA can only be held responsible for providing the accounting that AIG seeks from the NWCRP if the NWCRA agreed to assume that responsibility or, in very limited circumstances, through the operation of law. It is a fundamental aspect of corporate law that a corporation generally cannot be held responsible for conduct occurring before its formation. See GMAC, LLC v. Hillquist, 652 F.Supp.2d 908, 917 (N.D. Ill. 2009) (“In Illinois, ‘a corporation is a legal entity separate and distinct from its shareholders, directors and officers, and, generally from other corporations with which it may be affiliated.’” (quoting Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565, 569 (7th Cir. 1985))); see also Arch Aluminum & Glass Co., Inc. v. Haney, 964 So.2d 228, 234 (Fla. Dist. Ct. App. 2007) (“[T]he common law rule [is] that a ‘corporation is not liable for torts ... committed before it came into existence.’” (quoting 1A Fletcher Cyclopedia Corporations § 218)). Although there are certain exceptions to this general rule, AIG has not alleged – nor can it allege, consistent with its obligations under Rule 11 – any facts that would support a conclusion that such an exception exists in this case. Notably, the only counts asserted against the NWCRP are those seeking an accounting for policy years with which the NWCRA has no involvement. The NWCRP remains in place as the controlling contractual reinsurance arrangement for residual market policy years through 2009. The NWCRP did not, in any sense, “become” the NWCRA, and the NWCRA cannot be held responsible for an accounting by the Pool3. Accordingly, this Court should withdraw its judicial notice conflating the NWCRP and the NWCRA. 3In Illinois (as in most American jurisdictions) “actions taken by [a] predecessor corporation generally cannot be attributed to [a] successor corporation.” Greenberg v. Miami Children’s Hosp. Research Inst., Inc., 208 F. Supp. 2d 918, 924 (N.D. Ill. 2002)(J. Gettleman); see also Vernon v. Schuster, 688 N.E.2d 1172, 1175 (Ill. 1997). Although there are exceptions to the Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 5 of 35 PageID #:12254 6 II. THE COURT ERRED BY TAKING JUDICIAL NOTICE THAT THE NWCRP “BECAME” THE NWCRA. The Court should not have taken judicial notice that the NWCRP “became” the NWCRA. “[T]he effect of taking judicial notice under Rule 201 is to preclude a party from introducing contrary evidence and in effect, directing a verdict against him as to the fact noticed.” Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1083 (7th Cir. 1997). Accordingly, courts should be cautious and “should strictly adhere to the criteria established by the Federal Rules of Evidence before taking judicial notice of pertinent facts.” Id. at 1081. Judicial notice of a fact is appropriate only if the fact is “not subject to reasonable dispute” and “is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Here, the judicially noticed fact is erroneous and therefore meets none of the requirements of Rule 201(b). First, “[i]n order for a fact to be judicially noticed, indisputability is a prerequisite.” Hennessy v. Penril Datacomm Networks, Inc., 69 F.3d 1344, 1354 (7th Cir. 1995) (emphasis added); see also United States v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994). It is, therefore, reversible error for a court to take judicial notice of a fact that is reasonably disputed by a party. See Doss v. Clearwater Title Co., 551 F.3d 634, 639-40 (7th Cir. 2008) (reversing district court’s taking of judicial notice where plaintiff contended that judicially noticed public record “was not what it appeared to be”); Gen. Elec. Capital, 128 F.3d at 1083 (reversing district court’s taking of judicial notice because it did not first determine whether the fact was reasonably disputable). Here, the judicially noticed fact is not just subject to reasonable dispute, it is wrong. The NWCRP did not become the NWCRA. The NWCRA is a not-for-profit corporation with a general rule of successor nonliability, none of those exceptions apply here, and certainly should not be applied sua sponte through judicial notice. Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 6 of 35 PageID #:12255 7 different and separate legal status from the NWCRP. The NWCRP was not subsumed by or merged into the NWCRA when the NWCRA was formed. On the contrary, the contractual arrangement referred to as the NWCRP continues to operate, separate and distinct from the NWCRA, for reinsurance of residual market policy years prior to January 1, 2010. The NWCRA exists solely to oversee reinsurance of residual market policies issued on or after January 1, 2010, and has no connection to any of the conduct at issue in this litigation. Moreover, judicial notice that the NWCRP “became” the NWCRA is improper because the noticed “fact” is neither “generally known” nor “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). A “generally known” fact appropriate for judicial notice is one that “is so commonly known in the community as to make it unprofitable to require proof, and so certainly known as to make it indisputable among reasonable men.” McCormick on Evidence § 329 (1954). While the existence of the NWCRA may be just such an indisputable fact, the notion that the NWCRP became the NWCRA is not only subject to dispute, it is erroneous. The noticed fact in this case is neither commonly nor certainly known by the community within this Court’s jurisdiction. The noticed fact also has not been readily determined by resort to sources whose accuracy is unquestionable. Fed. R. Evid. 201(b)(2). This Court relied on three internet postings to support judicial notice that the NWCRP “became” the NWCRA. (Opinion at 17 n.6) But the noticed fact cannot be readily determined by these sources, and the one source that states the NWCRP “became” the NWCRA lacks the “indicia of trustworthiness” that would properly support judicial notice. The legal relationship between the NWCRP and the NWCRA cannot be “readily determined” by reviewing the content of two of the three internet postings cited by the Court. Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 7 of 35 PageID #:12256 8 One of the internet postings is cited merely to show that the NWCRA’s bylaws became effective on January 1, 2010; the post says nothing whatsoever to suggest that the NWCRP “became” the NWCRA. See NCCI, National Workers Compensation Reinsurance Association NFP Bylaws, https://www.ncci.com/nccimain/ResidualMarkets/EmployerProducerCarrierResources/Carrier/Pa ges/NFPBylaws.aspx. And the second cited posting, a 2007 annual report published by the NCCI actually contains facts that support the NWCRP’s contention that it did not “become” the NWCRA. NCCI, Residual Market Management Summary 2007 at 6 (“2007 Report”), https://www.ncci.com/documents/RM_Mgmt_Sum_2007.pdf. The 2007 Report states that “future policy year quota share reinsurance agreements” would be transferred to the NWCRA following its incorporation. 2007 Report at 6 (emphasis added). But as this article suggests, the NWCRP remains the contractual arrangement for oversight of reinsurance of the residual market risks for years prior to 2010, when all of the alleged underreporting at issue in this case is alleged to have occurred. The third internet post that this Court relied on uses imprecise language in a summary headline to incorrectly state that the NWCRP became the NWCRA, but, again, that language is not accurate. At a minimum, the post does not possess “sufficient indicia of trustworthiness” to warrant judicial notice of its factual content. See Gen. Elec. Capital, 128 F.3d at 1084 (ruling that judicial notice should not be taken of fact reported in private document, as document had “none of the indicia of trustworthiness found in a public record or a well-established learned treatise”). The post is a brief summary note that appears on the “Public Information” section of the Indiana Compensation Rating Bureau (“ICRB”)’s website. See Ron Cooper, ICRB, National Pool: Explanation of the National Workers Compensation Reinsurance Pool (NWCRP) (2009) (“ICRB Post”), http://sharepoint.icrb.net/public/CompClues/details.aspx?Item=180. The ICRB Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 8 of 35 PageID #:12257 9 is “a private non-profit, unincorporated association of all insurance companies licensed to write workers compensation insurance in Indiana,” See About ICRB, http://www.icrb.net/about/about.htm (last visited on July 23, 2010). Indiana has not participated in the NWCRP since 2004 and the NWCRA does not provide reinsurance to the Indiana residual market plan, see ICRB Post, http://sharepoint.icrb.net/public/CompClues/details.aspx?Item=180; National Workers Compensation Reinsurance Association NFP Bylaws, https://www.ncci.com/nccimain/ResidualMarkets/EmployerProducerCarrierResources/Carrier/Pa ges/NFPBylaws.aspx. The ICRB post upon which the Court based its judicial notice, a news item provided “for informational purposes only,” see ICRB Post, http://sharepoint.icrb.net/public/CompClues/details.aspx?Item=180, is not a source “whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2); see also Cofield v. Alabama Pub. Serv. Comm’n, 936 F.2d 512, 517 (11th Cir. 1991) (“That a statement of fact appears in a daily newspaper does not of itself establish that the stated fact is capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”) (internal quotation omitted). It bears no “indicia of trustworthiness” that could support taking judicial notice of its factual content. GE Elec. Capital, 128 F.3d at 1084. Although a court may take judicial notice sua sponte, Fed. R. Evid. 201(c), “[a] party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice,” Fed. R. Evid. 201(e). “In the absence of prior notification, the request may be made after judicial notice has been taken.” Id. Thus, if necessary, the NWCRP requests a hearing as to the propriety of judicial notice, at which the NWCRP will present affirmative evidence that Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 9 of 35 PageID #:12258 10 the NWCRA is an entirely separate legal entity from what is referred to as the NWCRP and that the NWCRA should not be held responsible for any of the conduct at issue in AIG’s complaint.4 CONCLUSION Because the NWCRP did not “become” the NWCRA on January 1, 2010, and because, at any rate, the legal relationship between the two has not been properly determined “by resort to sources whose accuracy cannot reasonably be questioned,” this Court should withdraw its judicial notice and should consider on its merits the NWCRP’s argument that it is not an entity capable of being sued. (See Docket Entry 520; Docket Entry 521; Docket Entry 548). If the Court is unwilling to withdraw its judicial notice, then pursuant to Federal Rule of Evidence 201(e), the NWCRP seeks an opportunity to be heard as to the propriety of taking that judicial notice. Dated: July 29, 2010 Respectfully submitted, National Workers Compensation Reinsurance Pool By: /s/ William M. Hannay William M. Hannay Marci A. Eisenstein Charles H.R. Peters SCHIFF HARDIN LLP 233 South Wacker Drive Chicago, Illinois 60606 4 At any such hearing, it would be AIG’s burden to demonstrate that any facts subject to judicial notice are actually “indisputable.” See Weinstein’s Federal Evidence § 201.31[3] (“In a case in which the court takes notice on its own motion, the burden of convincing the judge that the fact is indisputable falls logically on the party bearing the burden of persuasion on the issue the fact tends to establish.”). Case: 1:07-cv-02898 Document #: 675 Filed: 07/29/10 Page 10 of 35 PageID #:12259 11 CERTIFICATE OF SERVICE I, William M. Hannay, an attorney, hereby certify that I caused true and correct copies of the foregoing Memorandum of Law in Support of the Pool’s Motion for Reconsideration or Hearing Pursuant to Federal Rule of Evidence 201(E) to be sent by the U.S. District Court CM/ECF e-filing system on this, the 29th day of July, 2010. William M. 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