Primehealth Corp. v. Insurance Commissioner

SMITH, Judge. In these consolidated appeals, PrimeHealth Corporation (“PrimeHealth”), Goldmark Friendship, L.L.C. (“Goldmark”), and Dr. Christian E. Chinwuba (“Dr. Chinwuba”) challenge an order of the Circuit Court for Baltimore City striking or dismissing their petitions for judicial review of an order of the State Insurance Commissioner (“the Commissioner”). For the reasons discussed herein, they shall not prevail.

FACTS PrimeHealth is certified by the Commissioner as a health maintenance organization (“HMO”) 1 and by the Department of Health and Mental Hygiene as a managed care organization (“MCO”). 2 Goldmark, a Nevada Corporation, owns 100-per- ³⁸⁰ cent of PrimeHealth’s shares. In turn, Dr. Chinwuba and his wife own 81-percent of the ownership interest in Goldmark. Dr. Chinwuba and his wife are members of PrimeHealth’s board of directors. In March of 1998, State Insurance Commissioner Steven B. Larsen directed the Maryland Insurance Administration (“the Administration”) to conduct an examination of PrimeHealth’s financial health. 3 The Administration thus examined a number of solvency and management issues.

It presented a 59-page draft report to the Commissioner in June of 1998. Appended to the report were, among other things, the sworn testimonies of Dr. Chinwuba, PrimeHealth President Edward Thomas, and PrimeHealth Chief Financial Officer Albert St. Hillaire. The Administration determined that, both in order to qualify as an HMO and MCO and in response to the examination, PrimeHealth had overstated the value of its accounts receivable, overstated the values of various assets, and understated its liabilities. The Administration further determined that PrimeHealth had misrepresented its relationships with various other business entities and had used funds inappropriately, primarily in making payments to or on behalf of those entities.

The Administration concluded in the report that Prime-Health was insolvent, and that there were “grave concerns concerning the ability of the current management team to prudently manage the affairs of the Company, as well as whether the Company management meets the requisite tests of fitness and trustworthiness____” Much of the perceived wrongdoing was attributed to Dr. Chinwuba, whom the Administration characterized as “the principal and controlling owner of the Company.” The Commissioner provided PrimeHealth with a copy of the draft report in early August of 1998. Thereafter, on August ³⁸¹ 28, 1998, the Commissioner filed a complaint in the Circuit Court for Baltimore City, seeking an order that PrimeHealth show cause why the Commissioner should not be named its “Rehabilitator and Receiver.” 4 On September 4, 1998, PrimeHealth demanded that the Commissioner conduct a hearing on the draft report. 5 Prime-Health indicated that it “intend[ed] to challenge the findings and conclusions regarding solvency and the fitness of management____” In response to PrimeHealth’s demand, the Commissioner delegated Associate Deputy Commissioner Thomas Raimondi to conduct the hearing, and the hearing was scheduled for October 5 and 6, 1998. PrimeHealth filed exceptions to the draft report with the Commissioner on September 25, 1998. Before the administrative hearing was held, however, and in response to the complaint filed by the Commissioner in the Circuit Court for Baltimore City, PrimeHealth President Edward Thomas signed, on PrimeHealth’s behalf, a consent order which authorized the appointment of the Commissioner “as Receiver for the purpose of rehabilitation of ...

PrimeHealth____” The order, which was also signed for the court by Judge Joseph H.H. Kaplan and by Commissioner Larsen, was entered on October 1, 1998. It stated, in pertinent part: 2. The receiver shall have the powers and duties vested in him by the provisions of Title 9, Subtitle 2 of the Insurance Article, Annotated Code of Maryland, and § 19-706.1 of the Health-General Article, Annotated Code of ³⁸² Maryland and shall forthwith take possession of the property of Defendant and shall conduct the business thereof under the general supervision of the Court, and take such steps toward the removal of the cause and conditions which have made rehabilitation necessary as the Court may direct. PrimeHealth’s consent to this Order shall not be construed as an admission to any fact or allegation set forth in the Complaint for Rehabilitation and shall not be construed as a waiver of any right that PrimeHealth may have to contest any action taken by the Receiver.

(Emphasis added.) In a letter to Deputy Commissioner Raimondi dated October 13, 1998, Assistant Attorney General Christina Gerstung Beusch, who represented the Commissioner, indicated that, when the consent order was entered in the trial court, the parties contemplated postponing the hearing until early December. Deputy Commissioner Raimondi thus notified Prime-Health that the hearing had been rescheduled for December 1, 2, and 3, 1998. By letter dated November 25, 1998, however, Ms. Beusch asked the Deputy Commissioner to cancel the hearing,* in that [t]he Insurance Commissioner, as Receiver for Prime-Health, is convinced that it is not in the financial interest of PrimeHealth in receivership, its members, and its creditors to expend resources litigating the Exceptions to the Draft Financial Examination Report. The Insurance Commissioner, as Receiver, believes that the Draft Financial Examination Report should be accepted without further modifications or additions.

Assistant Attorney General Beusch added: “In that the actions of the Receiver in conducting the business of Prime-Health are subject to the jurisdiction of the Circuit Court, these decisions should be reviewed by the Court which appointed the Commissioner as Receiver and which has jurisdiction over proceedings related to the rehabilitation.” In response to Ms. Beusch’s letter, Deputy Commissioner Raimondi conducted a telephone conference with: Ms. Beusch; ³⁸³ Warren N. Weaver, who was counsel to PrimeHealth prior to the receivership; and the Regulations Coordinator for the Maryland Insurance Administration. 6 The Deputy Commissioner then canceled the administrative hearing. In a letter sent later that day to Ms. Beusch and Mr. Weaver, the Deputy Commissioner explained: ... In light of the placement of PrimeHealth into receivership and the appointment of the Insurance Commissioner as Receiver, I have determined that I no longer have jurisdiction to hear this matter. Pursuant to § 9-209 of the Insurance Article and Judge Kaplan’s Order, the Circuit Court for Baltimore City has exclusive jurisdiction over the rehabilitation proceedings.

I have also determined that the officers, directors, stockholders, members,, subscribers, agents, and employees of PrimeHealth no longer have standing to take exceptions to the Draft Financial Examination Report. Pursuant to § 9-212 of the Insurance Article and Judge Kaplan’s Order, the Insurance Commissioner is charged with conducting the business of PrimeHealth and any decision to take exceptions to the Draft Financial Examination Report would have to be made by the Insurance Commissioner. Judge Kaplan’s Order expressly enjoins PrimeHealth and its officers, directors, stockholders, members, subscribers, agents, and employees from the transaction of PrimeHealth’s business without the written consent of the Insurance Commissioner. On December 31, 1998, Nathaniel Speights, Esq., who was then counsel for Dr. Chinwuba and Goldmark, sent to the Commissioner a three-inch binder containing, inter alia, an independent financial analysis as well as an “attestation” from ³⁸⁴ Dr. Chinwuba refuting certain allegations of misconduct.

In a cover letter, counsel indicated that his clients hoped the information would “be considered during ... thé Maryland Insurance Administration hearing (or court hearing) on the Limited Scope Examination dated March 31, 1998.” Counsel did not demand a hearing on behalf of Dr. Chinwuba or Goldmark, however. The Maryland Insurance Administration thereafter submitted to the Commissioner an addendum to its draft report which, among other things, addressed and refuted the materials included in the binder. Both the binder and the addendum were appended to the draft report. On March 3,1999, the Commissioner filed a petition seeking the court’s permission to finalize the draft report.

The Commissioner pointed out that PrimeHealth had demanded an administrative hearing on the draft report but that the Commissioner had withdrawn the demand upon becoming rehabilitator. The court granted the petition in an order dated March 4,1999, which stated that “the Commissioner may, pursuant to § 2-209 of the Insurance Article, file the Limited Scope Financial Examination Report as the Commissioner’s final report.” The Commissioner issued an order by which he adopted, and thereby finalized, the report on March 8, 1999. On March 12, 1999, Dr. Chinwuba, through attorney Sunanda K. Holmes, moved for reconsideration of the March 4 order permitting the Commissioner to finalize the report. To date, the court has not ruled on Dr. Chinwuba’s motion and Dr. Chinwuba has made no attempt to pursue the matter further.

On April 7, 1998, Dr. Chinwuba, through Sunanda K. Holmes, Esq., petitioned the court for judicial review of the Commissioner’s order finalizing the report. On April 12, PrimeHealth, through attorneys Sunanda K. Holmes and Leonard L. MeCants 7 , also petitioned for judicial review of ³⁸⁵ the Commissioner’s order. Goldmark, through Ms. Holmes alone, filed a similar petition for judicial review that same day. The Commissioner moved to strike PrimeHealth’s petition and to thereby deny it relief.

The court granted the motion on May 10,1999. On June 3,1999, PrimeHealth noted an appeal to this Court. The Commissioner further moved to dismiss the petitions filed by Dr. Chinwuba and Goldmark. The trial court granted the motion to dismiss Dr. Chinwuba’s petition on September 7, 1999.

It granted the motion to dismiss Goldmark’s petition on September 9, 1999. 8 Dr. Chinwuba and Goldmark separately noted appeals to this Court on September 23,1999. The Commissioner informs this Court—and the appellants do not dispute—that Dr. Chinwuba and Goldmark have instituted various other related actions. For instance, a suit by Dr. Chinwuba against the Commissioner and the Maryland Insurance Administration for defamation and false light invasion of privacy is now pending in the Circuit Court for Baltimore City. Dr. Chinwuba has filed an action against Judge Kaplan alleging that the judge has not been impartial, and that suit is pending in the Circuit Court for Baltimore City as well.

Goldmark has filed, inter alia, a collateral action in the Circuit Court for Baltimore City seeking to terminate the receivership proceeding and challenging the validity of Prime-Health’s consent to receivership. It has also filed, in the same court, a collateral action seeking to bar any sale of Prime- ³⁸⁶ Health by way of a stock purchase agreement as part of a rehabilitation plan. Dr. Chinwuba and Goldmark, together, have sued the Commissioner as rehabilitator and various other persons in the Circuit Court for Baltimore City for alleged violations of their constitutional rights in the establishment and administration of the receivership. A similar suit filed in federal court was dismissed, and no appeal has been filed from that dismissal.

ISSUES Appellants argue, in essence, that they properly demanded an administrative hearing on the report and properly petitioned for judicial review from the Commissioner’s order finalizing the report without a hearing, and that the trial court therefore erred in striking or dismissing their petitions. 9 The ³⁸⁷ Commissioner counters that PrimeHealth’s petition was properly struck and that the petitions of Goldmark and Dr. Chinwuba were properly dismissed. The Commissioner posits that the petitions were, in actuality, collateral challenges to the trial court’s March 4,1999 order authorizing the finalization of the report. He contends that the only proper way to lodge an appellate challenge to the March 4 order was to appeal the March 4 order. In the alternative, the Commissioner argues that only the Commissioner as rehabilitator of PrimeHealth, and not PrimeHealth itself, was entitled to pursue an administrative hearing on the report once the consent order was entered.

The Commissioner contends that neither Goldmark nor Dr. Chinwuba was ever entitled to a hearing on the report. We agree that the trial court properly disposed of the petitions, although we do not accept all of the arguments propounded by the Commissioner. DISCUSSION Preliminarily, although the Commissioner does not raise this argument, there is considerable question as to whether the petitions for circuit court review filed by PrimeHealth and Goldmark were timely. Md. Rule 7-203 directs that a petition for judicial review shall be filed within 30 days after the latest of: (1) the date of the order or action of which review is sought; (2) the date of the administrative agency sent notice of the order or action to the petitioner, if notice was required by law to be sent to the petitioner; or (3) the date the petitioner received notice of the agency’s order of action, if notice was required by law to be received by the petitioner. ³⁸⁸ The Commissioner’s order finalizing the report is dated March 8, 1999, and the parties agree that the Commissioner “issued” the order on that date.

Dr. Chinwuba’s petition for judicial review was filed in the circuit court on April 7, 1999. PrimeHealth’s and Goldmark’s petitions were not filed until April 12, 1999—35 days after the date of the Commissioner’s order. Although the parties direct this Court to several provisions that require the Commissioner to give a copy of a draft report to the person examined at least 30 days before the report is finalized, see § 2-209(c)(l) of the Ins. art., Vol. 1; Md. Regs. Code tit. 31, § 04.01.03 C, they direct us to no provision that would require notice to any person once the report is actually finalized.

We are aware of no such provision. It thus appears that the petitions of PrimeHealth and Goldmark were untimely. Because the Commissioner has not raised this matter, we shall assume arguendo that the petitions were timely and shall affirm on other grounds the trial court’s disposition of the petitions. —Appealability of Trial Court’s March 4, 1999 Order— The Commissioner contends that the instant appeals are nothing more than improper collateral attacks on the trial court's March 4, 1999 order, by which the court, in the Commissioner’s view, “authorized the Commissioner to make the Report final.” The Commissioner argues that, had the appellants wanted to challenge that order, they should have appealed from it. 10 We disagree and observe that the Commissioner miseharacterizes the substance of the March 4 order. ³⁸⁹ When the Commissioner acts as a rehabilitator in a receivership proceeding pursuant to § 9-212 of the Insurance Article and §§ 15-102.2 11 and 19-706.1 of the Health General Article, he wears, in effect, two hats. On the one hand, he remains responsible for exercising the usual powers and performing the usual duties of the Maryland Insurance Administration.

See Code (1995, 1997 RepLVol., 1999 Cum.Supp.), § 2-103 of the Ins. art., Vol. 1 (setting forth the powers and duties of the Commissioner). On the other hand, upon being appointed the rehabilitator of an insurer, the Commissioner must also “take possession of the property of the insurer and conduct the business of the insurer under the general supervision of the court.” § 9-212(a)(ii) of the Ins. art., Vol. 1. A Commissioner as rehabilitator “steps into the shoes of the insurer.” 1 Lee R. Russ & Thomas F. Segalia, Couch on Insurance § 5:22 at 5-41 (1997). See also 44 C.J.S. Insurance § 170 at 332 (1993). “He is charged with a duty to act with a broad view toward minimizing financial harm to all policyholders, creditors, and the general public.” Id.

The Commissioner oversees examinations of insurers and finalizes reports based on such examinations on a regular basis, regardless of whether the examinations lead to receivership proceedings. See generally §§ 2-205 and 2-209 of the Ins. art., Vol. 1. Thus, the Commissioner exercised a usual power and performed a usual duty of his office when he finalized the report. He performed a function that he was authorized by statute to perform without court supervision, rather than a rehabilitative function that required the court’s approval.

To the extent that the trial court’s March 4, 1999 order purported to authorize the finalization of the report, the order was superfluous. The Commissioner wore the hat of a rehabilitator, however, when he withdrew PrimeHealth’s demand for an administrative hearing on the finalization of the report. Thus, ³⁹⁰ the Commissioner was required to obtain the court’s permission to withdraw the demand. In substance, that is precisely what the Commissioner obtained with the March 4, 1999 order.

In his petition seeking the court’s permission to finalize the report, the Commissioner made clear that PrimeHealth had demanded an administrative hearing prior to the receivership, and that the Commissioner had withdrawn the demand upon becoming rehabilitator. Arguably, the Commissioner as rehabilitator might have more properly sought the court’s permission to withdraw the demand for a hearing before the withdrawal was requested of Deputy Commissioner Raimondi, who was to have presided over the administrative hearing, rather than when the report was about to be finalized by the Commissioner in the course of his usual duties. Because it is clear that the result would have been the same—i.e. the court would have granted the Commissioner as rehabilitator permission to withdraw PrimeHealth’s demand for a hearing—we are not troubled by the procedure employed by the Commissioner as rehabilitator. Section 9-216 of the Insurance Article provides: An appeal may be taken to the Court of Special Appeals from: (1) an order that grants or refuses rehabilitation, liquidation, or conservation; and (2) any other order in a delinquency proceeding that has the character of a final order as to the particular part of the delinquency proceeding covered by the order.

Code (1995, 1997 RepLVoL), § 9-216 of the Ins. art., Vol. 1 (emphasis added). While the Commissioner as rehabilitator was required to obtain the court’s permission before conducting any business on behalf of PrimeHealth, including the withdrawal of the demand for an administrative hearing, the court’s March 4, 1999 order granting permission to withdraw the demand did not resolve any portion of the receivership proceeding. As a general rule, when a Commissioner is appointed to rehabilitate an insurer in a receivership proceeding and is authorized ³⁹¹ to work out a rehabilitation plan[, the ... ] proceeding ... is but one proceeding until the proposed plan is ultimately passed on, and intervening orders are merely preliminary orders which may be considered on appeal from the order affirming the rehabilitation plan. 44 C.J.S. Insurance § 173 at 336. Thus, contrary to the Commissioner’s suggestion, the court’s March 4, 1999 order, authorizing the Commissioner as rehabilitator to withdraw PrimeHealth’s demand for an administrative hearing, was not a final and appealable order.

That is not to say that a person entitled to demand a hearing in this case would be required to wait until a rehabilitation plan is affirmed by the court before it could appeal the Commissioner’s finalization of the report. As we have explained, the Commissioner wears two hats in a receivership proceeding. When he finalized the report in the case sub judice, he was wearing the hat of the State Insurance Commissioner. Section 2-215(a)(2) of the Insurance Article authorizes an appeal to the circuit court from “a refusal by the Commissioner to grant a hearing” in regard to a report.

See Code (1995, 1997 RepLVol., 1999 Cum.Supp.), § 2-215(a)(2) of the Ins. art., Vol. 1. As the appellants properly recognize, such an appeal may be secured by petition for judicial review. See Md. Rules 7-202 and 7-203. Of course, if PrimeHealth were entitled to demand a hearing—and we shall hold, infra, that it was not—and if the court were to approve a plan for rehabilitation while PrimeHealth’s petition challenging the Commissioner’s finalization of the report was pending, the Commissioner might attempt to invoke as to PrimeHealth the doctrines of res judicata and collateral estoppel.

See Mackall v. Zayre Corp., 293 Md. 221, 227-28 , 443 A.2d 98, 101-02 (1982) (“ ‘If the second suit is between the same parties and is upon the same cause of action, a judgment in the earlier case on the merits is an absolute bar, not only as to all matters which were litigated in the earlier case, but as to all matter which could have been litigated [res judicata]. If, in a second suit between the same parties, even though the cause of action is different, any determination of fact, which was actu ³⁹² ally litigated in the first case, is conclusive in the second case [collateral estoppel]’ ” (citations and emphasis omitted; brackets in original)); Queen City Enter., Inc. v. Independent Theatres, Inc., 280 Md. 387, 394 , 187 A.2d 459, 463 (1963) (“[RJes judicata is not applicable where the judgment is not a final one ...”); 13 M.L.E. Judgments § 84 at 453 (1999) (“A judgment that is merely interlocutory constitutes no bar to a subsequent action”). —Standing to Demand Administrative Hearing— PrimeHealth The Commissioner further argues that, once the consent order was entered, only the Commissioner as