Judge Won’t Dismiss Executive Life Case
A judge on Monday denied a bid by Credit Lyonnais to dismiss a $2-billion lawsuit by California’s insurance commissioner alleging fraud in the bank’s purchase of Executive Life in the 1990s and urged the parties to settle.
U.S. District Judge A. Howard Matz in Los Angeles told both sides to consider renewing settlement talks, saying, “Why posture when the posture itself is so expensive and risky?”
California Insurance Commissioner John Garamendi is suing on behalf of about 320,000 policyholders who lost billions after the insolvent insurer and its bond portfolio were sold at a court auction to what were actually fronts for Credit Lyonnais, according to the suit.
An agency of the French government and Credit Lyonnais, which was bought last year by France’s largest bank, Credit Agricole, earlier this year entered guilty pleas as part of a $770-million settlement of criminal charges related to the purchase of the failed Los Angeles-based insurer.
The bank and other French parties sought to avoid a Feb. 15 trial in the California Insurance Department’s 5-year-old civil case.
Matz had words for both sides. He told Garamendi’s lawyers that they were going to have to deal with “utterly inconsistent testimony that would undermine their credibility” and that the agency probably wouldn’t receive the “large numbers” in monetary damages it wanted.
He then told Credit Lyonnais and other French parties that “I don’t think the story is going to be pretty, and when you consider that at the time Credit Lyonnais was government-owned,” you have to consider “what findings American jurors are going to be likely to make.”
Lawyers for both sides have met twice this year, most recently in August, in court-ordered mediation sessions. No further settlement discussions are scheduled, said Gary Cohen, general counsel for the insurance department.
“We felt we had to get past today for the defendants to talk seriously,” Cohen said. “As far as the insurance commissioner is concerned, he’d be happy to settle this case. He certainly doesn’t have any burning desire to spend one to two weeks testifying.”
Randall Fishburn, a lawyer for Credit Lyonnais and the French government, said after the hearing, “it looks like we’re going to trial.”
Once California’s largest insurer, Executive Life failed after the junk bond market collapsed in 1989. Garamendi, during his first term as insurance commissioner, seized the business and put it up for sale. Garamendi returned to the post last year after working in the private sector and losing a bid to be governor.
In 1992, Garamendi agreed to an offer by Credit Lyonnais to pay $3.25 billion for the bonds and loan an additional $300 million to a group of French firms that separately bought Executive Life’s insurance business. Credit Lyonnais told regulators and the judge overseeing Executive Life’s receivership that the bank wouldn’t own or manage the insurance business.
Garamendi now claims that members of the French consortium weren’t the true buyers and they were fronts for Credit Lyonnais’ Altus Finance unit. California’s insurance code bars foreign governments from owning a state insurer, and federal laws at the time prohibited banks from owning insurers.
