Stanford Law School - Robert Crown Law Library

Filed 8/15/05

IN THE SUPREME COURT OF CALIFORNIA

STATE OF CALIFORNIA,
Plaintiff and Appellant,
S119046
v.
ALTUS FINANCE, S.A. et al.,
)

Defendants and Respondents. )

We granted the request of the United States Court of Appeals for the Ninth
Circuit to answer two questions of law. (Cal. Rules of Court, rule 29.8.)
(1) Can the Attorney General pursue civil remedies, under the California False
Claims Act (CFCA) (Gov. Code, § 12650 et seq.) and the unfair competition law
(UCL) (Bus. & Prof. Code, § 17200 et seq.) concerning the assets of an insolvent
insurance company for which the Insurance Commissioner is acting as conservator
or liquidator, or does the Insurance Code, particularly section 1037, give exclusive
authority to the Insurance Commissioner to bring civil actions? (2) Do assets to
which the Insurance Commissioner acquires title from an insolvent insurance
company under Insurance Code section 1011 constitute “state funds” within the
meaning of the CFCA?
Answering the second question first, we conclude that the Insurance
Commissioner (Commissioner), as a conservator of the insolvent insurance
company’s assets, holds these assets in trust for private parties, primarily the

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insurance company’s policyholders. These assets do not become “state funds”
within the meaning of Government Code section 12650. The CFCA does not
apply because it was intended to prevent false requests or demands that impact the
public treasury.
Turning to the first question, we conclude that the Attorney General may
not pursue an action under the CFCA because the assets in question are not “state
funds” within the meaning of the CFCA. As to the UCL claims, as explained
below, these claims must be parsed according to the type of remedies sought. The
Attorney General seeks to pursue three remedies under the UCL: restitution, civil
penalties, and injunctive relief. The first, restitution from the losses resulting from
the allegedly fraudulent acquisition of the insolvent insurance company’s assets,
trespasses directly on the core function of the Commissioner as conservator of the
company. We conclude the Attorney General may not, consistent with Insurance
Code section 1037 subdivision (f), pursue such a remedy. In pursuing the second
remedy, civil penalties based on defendants’ allegedly unlawful conduct in
violating state and federal statutes, the Attorney General acts primarily in his role
as the state’s chief law enforcement officer, seeking to punish and deter unlawful
conduct. We conclude that the Attorney General may pursue such a remedy under
the UCL. Third, the Attorney General seeks injunctive relief, but the object of the
injunctive relief is unclear from the record. As explained below, he may pursue
that relief only to the extent that it implicates core law enforcement functions
rather than duplicating the role played by the Commissioner as conservator of the
insolvent company.
I. STATEMENT OF FACTS
We state the facts as they appear in the Ninth Circuit’s request to this court.
Because the case came to the Ninth Circuit as a motion to dismiss, its statement of
the facts is based on the Attorney General’s pleadings. They are as follows:
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More than a decade ago, Executive Life Insurance Company (ELIC), a
California insurance company with approximately 300,000 insureds, became
insolvent when many policyholders cashed out their policies because of concerns
about ELIC’s large junk bond portfolio. Pursuant to California law (see Ins. Code,
§ 1011), the Commissioner seized ELIC’s assets on April 11, 1991, by order of the
superior court and put ELIC into conservatorship.
The Commissioner adopted and implemented a two-part plan to rehabilitate
ELIC. First, defendant Altus Finance, S.A. (Altus), a French company, purchased
the company’s junk bond portfolio. Second, other French investors, the MAAF
Group, formed a holding company, New California Life Holdings (NCLH), that in
turn purchased ELIC’s insurance business and named the new company Aurora
National Life Assurance Company (Aurora). The MAAF Group owned two-thirds
of NCLH.
According to the Attorney General, the corporation behind these
transactions was Crédit Lyonnais, a French bank owned in part by the government
of France, operating through its subsidiary, Altus. Crédit Lyonnais and affiliated
companies are among the defendants here, along with American investment
bankers (hereinafter the Apollo parties) and other purported coconspirators that
acted as fronts for Altus. The complaint alleges that “[t]he Commissioner did not
know that the MAAF Group was controlled by Altus or that Apollo would share in
the profits generated by the Insurance Business or the Bonds. California law
required disclosure of such an interest.” Moreover, Apollo and Altus/Crédit
Lyonnais knew they could not meet the announced bidding requirements because
neither had any experience operating an insurance business, and state and federal
law prohibited Altus from owning or operating the insurance business anyway.
Apollo also knew that the Commissioner would not approve of Apollo acquiring
any financial interest in the insurance business because of its bad public image as a
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result of its extensive connections with Drexel Burnham Lambert and Michael
Milken.
The Attorney General alleges that Altus fraudulently acquired ELIC’s
insurance company assets from the Commissioner, in violation of state insurance
and federal banking law. Insurance Code section 699.5 precludes foreign
governments, agencies, or subdivisions thereof from owning, operating, or
controlling, directly or indirectly, a California insurance company. The Bank
Holding Company Act, 12 United States Code section 1841 et seq., prohibits a
foreign bank from owning an American insurance company.
Altus and its fronts purportedly made false statements denying that Crédit
Lyonnais would have any equity interest in or control over the buyers. Yet after
Altus secretly acquired the insurance company assets, “[u]sing a back-dated and
falsified agreement, Altus sold Artemis [S.A., a French company owned in part by
Crédit Lyonnais and François Pinault] the insurance business, and Apollo
orchestrated the timing of formal transfers of ownership from the phony fronts to
Artemis in order to avoid public scrutiny.” The Attorney General’s complaint
states that “[h]ad the true facts been disclosed, the Commissioner could not and
would not have approved the Altus/NCLH bid.”
Artemis subsequently obtained the Commissioner’s approval to buy shares
in NCLH from the MAAF Group, using applications that did not disclose the
Artemis-Altus relationship. By 1995, Artemis had acquired all of the MAAF
Group’s interest in NCLH and therefore controlled Aurora.
After the Commissioner discovered that the purchasers of ELIC’s insurance
company assets were controlled by prohibited foreign entities, he filed suit in state
court on February 18, 1999, alleging fraud and seeking damages. Crédit Lyonnais
removed the case to federal court. The same district court judge who decided the
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instant case is hearing that litigation, in which most of the defendants are also
defendants here.
Also in February 1999, a qui tam plaintiff (RoNo LLC) filed a sealed
whistle-blower complaint. The Attorney General intervened in the qui tam action,
which was subsequently removed by defendants to federal court based on the
Foreign Sovereign Immunities Act, 28 United States Code sections 1330, 1602 et
seq., and consolidated with the Commissioner’s action for discovery and pretrial
purposes. In January 2002, the Attorney General filed his first amended complaint,
naming the Apollo parties as additional defendants. The Attorney General asserts
that the State of California was damaged in an amount in excess of $2 billion by
defendants’ unlawful transactions, because the ELIC business could have been
sold to other entities at a higher price and a lower cost had the truth been known,
with the result that more money would have been available for ELIC’s
policyholders.
The present lawsuit seeks, inter alia, treble damages under the CFCA, as
well as “civil penalties and an order for restitution of all monies and property
obtained and disgorgement of all profits derived . . . as well as injunctive relief”
under the UCL.
The district court found that Insurance Code section 1037 subdivision (f),
which as explained below, grants the Commissioner, as conservator and liquidator
of the insolvent insurer’s assets, exclusive authority to litigate matters in
connection therewith, precludes the Attorney General from prosecuting this action.
The court expressed concern that the Attorney General’s claims are “utterly
dependent on the testimony of the Insurance Commissioner . . . . Plaintiff has
failed to make a single argument (and this Court cannot conceive of one) why it is
necessary or even beneficial for two entirely separate and different agencies of the
Executive Branch of the State of California to pursue virtually identical claims
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against substantially the same defendants.” As a matter of statutory interpretation,
the district court held that “[a]lthough these respective cases have been
consolidated for discovery and probably could be consolidated at trial, the
continued prosecution of superfluous lawsuits causes inherent and great delay,
huge additional expenses and a host of complicated conceptual and practical
problems. The California Legislature surely did not intend such a result when it
enacted section 1037 [subdivision] (f) of the Insurance Code.”
The Attorney General appealed, and the Ninth Circuit requested a decision
from this court on the above questions.1
II. DISCUSSION
A. Are Assets of the Insolvent Insurer “State Funds”?
We answer the second question first, i.e., whether assets to which the
Commissioner acquires title constitute “state funds” within the meaning of the
CFCA, and specifically Government Code section 12650, subdivision (b)(1)
(hereinafter Government Code, section 12650(b)(1)).
The CFCA imposes liability on any person who “[k]nowingly presents or
causes to be presented to an officer or employee of the state . . . a false claim for
payment or approval.” (Gov. Code, § 12651, subd. (a)(1).) The CFCA defines a
“claim” as “any request or demand for money, property, or services made to any
employee, officer, or agent of the state or of any political subdivision, or to any
contractor, grantee, or other recipient, whether under contract or not, if any portion
of the money, property, or services requested or demanded issued from, or was

1
Since accepting the Ninth Circuit’s request, we have been informed by the
Attorney General that he has entered into a settlement with some but not all of the
defendants, apparently in conjunction with a settlement between these defendants
and the Commissioner. The defendants include Crédit Lyonnais, Aurora, and
NLCH.
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provided by, the state (hereinafter ‘state funds’) . . . . ” (Gov. Code,
§ 12650(b)(1)).
The Attorney General argues that ELIC’s assets temporarily became “state
funds” when the Commissioner exercised his authority under Insurance Code
section 1011 to acquire and subsequently distribute those assets to the defendants
in the ELIC conservatorship proceedings. Insurance Code section 1011 provides
in pertinent part: “The superior court of the county in which the principal office of
a person described in Section 1010 [i.e., insurance companies and specified other
entities] is located shall, upon the filing by the commissioner of the verified
application showing any of the following conditions hereinafter enumerated to
exist, issue its order vesting title to all of the assets of that person, wheresoever
situated, in the commissioner or his or her successor in office, in his official
capacity as such, and direct the commissioner forthwith to take possession of all of
its books, records, property, real and personal, and assets, and to conduct, as
conservator, the business of said person, or so much thereof as to the
commissioner may seem appropriate, and enjoining said person and its officers,
directors, agents, servants, and employees from the transaction of its business or
disposition of its property until the further order of said court: [¶] . . . . [¶]
(d) That such person is found, after an examination, to be in such condition that its
further transaction of business will be hazardous to its policyholders, or creditors,
or to the public.” (Ins. Code, § 1011, italics added.)
The statute is part of a statutory scheme found in chapter 1, article 14 of the
Insurance Code (hereinafter article 14), relating to the Commissioner’s treatment
of insolvent insurers. Article 14 is the functional equivalent of federal bankruptcy
laws, which generally do not apply to insurance companies. (11 U.S.C.
§ 109(b)(2).) After acquiring title to the insolvent insurer’s assets, the
Commissioner’s role is as “a trustee for the benefit of all creditors and other
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persons interested in the estate of the person against whom the proceedings are
pending.” (Ins. Code, § 1057.) The Commissioner acts as “conservator or
liquidator” of the assets. (Id., § 1037.) Public policy favors rehabilitating the
insurance company if possible, with liquidation as a last resort. (Id., § 1016
[proceeding to liquidation when conservation is “futile”]; Commercial Nat. Bank
v. Superior Court (1993) 14 Cal.App.4th 393, 398.) In order to effect
rehabilitation, the Commissioner may enter into a court-approved rehabilitation
agreement. (Ins. Code, § 1043.) The Commissioner’s conservatorship is
terminated by the court at the behest of either the Commissioner or the insurer
when the ground for such conservatorship “does not exist or has been removed”
and when the insurer “can properly resume title and possession of its property and
the conduct of its business.” (Id., § 1012.) If the Commissioner goes the
liquidation route, his or her role terminates after executing a court-approved plan
for dispersing the insurer’s assets among its creditors. (Id., § 1035.5.)
The Attorney General argues that the phrase “issued from” as it appears in
Government Code, section 12650(b)(1) encompasses the transfer of property at
issue in this case, i.e., property temporarily controlled by the Commissioner as a
trustee on behalf of private parties. “In statutory construction cases, our
fundamental task is to ascertain the intent of the lawmakers so as to effectuate the
purpose of the statute. [Citation]. ‘We begin by examining the statutory language,
giving the words their usual and ordinary meaning.’ ” (Estate of Griswold (2001)
25 Cal.4th 904, 910-911.) The Attorney General contends that the dictionary
definition of the phrase “to issue” supports his position. Specifically, the Attorney
General points to Black’s Law Dictionary (5th ed. 1979) page 745, which defines
the verb “to issue” as, inter alia, “[t]o send out, to send out officially . . . to deliver,
for use or authoritatively . . . .” The Attorney General also cites Webster’s Third
New International Dictionary (1981) page 1201, which defines “to issue” as, inter
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alia, “1. to cause to come forth . . . . 3.a. to cause to appear or become available by
bringing out for distribution to or sale or circulation among the public.”
“ ‘To seek the meaning of a statute is not simply to look up dictionary
definitions and then stitch together the results. Rather, it is to discern the sense of
the statute, and therefore its words, in the legal and broader culture. Obviously, a
statute has no meaning apart from its words. Similarly, its words have no meaning
apart from the world in which they are spoken.’ ” (Hodges v. Superior Court
(1999) 21 Cal.4th 109, 114 [considering the term “arising out of”].) In the present
case, we do not believe that the Attorney General’s proffered dictionary
definitions shed light on the narrow question at issue here. The term “to issue” is
generally employed as an abstract legal term that can apply to a broad range of
activities ⎯ including “issuing” a search warrant or “issuing” capital stock of a
company. (Black’s Law Dict. (7th ed. 1999) p. 836.) Although the dictionary
definitions of “to issue” cited by the Attorney General could theoretically
encompass a transfer of private property held in trust by a public official, the use
of the general term “issued from” does not definitively resolve whether the
Legislature intended that specific meaning. Certainly, the term “issued from” has
no special or connotative meaning that points inexorably to its application in the
present context.
Because the language of the statute does not answer the question before us,
“we look to a variety of extrinsic aids, including the ostensible objects to be
achieved, the evils to be remedied, the legislative history, . . . and the statutory
scheme of which the statute is a part.’ ” (Granberry v. Islay Investments (1995) 9
Cal.4th 738, 744.) The legislative history of the CFCA indicates that the statute’s
purpose was to protect the public treasury and the taxpayers. The principal drafter
of the statute testified before the Assembly Committee on the Judiciary that the
statute, which has a whistleblower component (see Gov. Code, § 12653), would be
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self-executing in that it would “deputiz[e] citizens to join the fight to protect the
public treasury.” (Sen. Com. on Judiciary, Rep. on Assem. Bill No. 1441 (1987-
1988 Reg. Sess.) appended testimony of David Huebner, representative of the
Center for Law in the Public Interest, before Assem. Com. on Judiciary, May 6,
1987, p. 3) Moreover, “taxpayers benefit because their hard-earned dollars are no
longer squandered through fraudulent practices . . . . [T]axpayers see their elected
representatives . . . calling upon the source of the funds, the taxpayers themselves,
for assistance. The only losers . . . are those who . . . . expect to get away with
raiding the public treasury.” (Id., at p. 4.) The statute’s legislative sponsor,
Assemblyman Floyd, stated in his letter urging Governor Deukmejian to sign the
CFCA: “This bill lets the state recover treble damages plus penalties from
contractors who try to rip off the taxpayer.” (Assemblyman R.E. Floyd, sponsor
of Assem. Bill No. 1441 (1987-1988 Reg. Sess.), letter to Governor Deukmejian,
Sept. 15, 1987.)
California courts have consistently reaffirmed that the Legislature
“obviously designed [the CFCA] to prevent fraud on the public treasury,”
(Southern Cal. Rapid Transit Dist. v. Superior Court (1994) 30 Cal.App.4th 713,
725 (Southern Cal. Rapid Transit Dist.), and that “[t]he ultimate purpose of the
[CFCA] is to protect the public fisc.” (City of Hawthorne ex rel. Wohlner v. H &
C Disposal Co. (2003) 109 Cal.App.4th 1668, 1677; accord, Laraway v. Sutro &
Co., Inc. (2002) 96 Cal.App.4th 266, 274; City of Pomona v. Superior Court
(2001) 89 Cal.App.4th 793, 801; Levine v. Weis (1998) 68 Cal.App.4th 758, 765;
Wells v. One2One Learning Foundation (2004) 10 Cal.Rptr.3d 456, 471-472).
Because the purpose of the CFCA is to protect the public treasury and the
taxpayer, we next inquire into whether that purpose would be fulfilled by treating
the property at issue in this case as “state funds.” Our starting point is Carpenter
v. Pacific Mutual Life Ins. Co. (1937) 10 Cal.2d 307 (Carpenter), in which this
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court addressed the nature of the Commissioner’s property interest in the assets of
an insolvent insurance company. In Carpenter, policyholders of an insolvent
insurer subject to rehabilitation proceedings under Insurance Code section 1011
challenged a court order affirming the rehabilitation plan, arguing that the
Commissioner improperly used the insolvent insurer’s assets to purchase stock in
a new insurance company. (Carpenter, supra, 10 Cal.2d at p. 339.) The
policyholders asserted that in using the assets to purchase stock of another
company, the “commissioner as conservator” violated a California constitutional
provision (Cal. Const., former art. XII, § 13, now art. XVI, § 17), prohibiting the
state from loaning its credit to, subscribing to, or otherwise being interested in the
stock of a corporation.
This court acknowledged that Insurance Code section 1011 “vest[s] the
commissioner with title to all the assets of the [insolvent insurance] company.”
(Carpenter, supra, 10 Cal.2d at p. 330.) It also recognized that the Commissioner
is a “state officer” and that the “state has an interest in rehabilitating insolvent
insurance companies.” (Id. at p. 340.) Carpenter nonetheless rejected the
argument that the Commissioner’s temporary control over the property rendered
the state “interested” in the stock of the new insurer. “Of course the insurance
commissioner is a state officer, and of course the state has an interest in
rehabilitating insolvent insurance companies, but that interest is not a vested
interest as is contemplated by the above constitutional provision. Section 1057 of
the Insurance Code . . . expressly provides that in all proceedings thereunder the
commissioner acts as trustee for the benefit of all of the creditors of the insolvent
company. It is quite clear that the commissioner by subscribing to the stock of the
new company has not loaned the credit of the state to the new company. Not a
penny of state money has gone into the treasury of the new company . . . . The
commissioner acting pursuant to statute, with court approval, took certain assets of
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the old company and transferred them to the new company in exchange for the
stock which he holds as trustee for the benefit of the creditors of the old company.
Obviously, the commissioner as a state officer did not subscribe to the stock of the
new company so as to make the state a stockholder.” (Ibid., italics added.)
Thus, both Carpenter and the Insurance Code provisions cited above
demonstrate that the assets to which the Commissioner holds title do not become
part of the public treasury, but are held in trust for the benefit of private parties.
This point is underscored by what the Commissioner actually did with the
proceeds of the sale of ELIC’s assets in the present case. As recounted by the
district court in this case, these proceeds were not transferred to the state’s General
Fund, but rather were initially invested in an escrow account established by the
Commissioner, and were ultimately conveyed to private corporations. (State of
California ex rel. RoNo, LLC, (C.D.Cal. 2002) No. CV01-8587AHM (CWX),
2002 WL 1008251 at *9; see also In re Executive Life Ins. Co. (1995) 32
Cal.App.4th at pp. 360-361.) At no time did these funds in any sense become
public funds.
The Attorney General’s argument that the assets are state funds is further
undermined by language elsewhere in the CFCA, particularly Government Code
section 12651, subdivision (a). That subdivision states that the penalty for a
violation of the CFCA is “three times the amount of damages which the state . . .
sustains.” In the present case, in which the state holds property in trust for private
beneficiaries, the state has sustained no damages. The Attorney General contends
that absent the defendants’ allegedly fraudulent bid for ELIC’s assets, another
bidder would have paid more money for the property. But the Attorney General
does not dispute that any additional money paid for ELIC’s assets by an alternate
bidder would have ultimately been distributed to policyholders and other creditors
of ELIC rather than deposited into the state treasury. (See Ins. Code, § 1033.)
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Indeed, the state has disclaimed any liability under the rehabilitation plan, which
states that “the parties hereto agree and acknowledge that the State of California is
not a party and shall have no liability with respect hereto. 2”
The Attorney General cites Southern Cal. Rapid Transit Dist., supra, 30
Cal.App.4th 713, for the proposition that a false claim under the CFCA does not
require financial harm to the public treasury. In that case, the court held that
defendants’ false documentation regarding their status as a disadvantaged business
enterprise fell within the scope of the CFCA. The distinction between that case
and the present one is fundamental. In Southern Cal. Rapid Transit Dist.,
defendants’ fraudulent documentation was in connection with a bid that would
have led a governmental entity to provide funds from the public treasury under
false pretenses. In other words, it was an attempt to defraud the government out of
public funds. In the present case, no such public funds are at issue. In fact,
Southern Cal. Rapid Transit Dist. stated that “As a statute obviously designed to
prevent fraud on the public treasury, [Government Code] section 12653 plainly
should be given the broadest possible construction consistent with that purpose.”
(Southern Cal. Rapid Transit Dist, supra, 30 Cal.App.4th at p. 725, italics added.)
Although the CFCA authorizes civil penalties for attempts to misappropriate
public funds that were not in fact completed by payment from the treasury (see

2
The Attorney General also argues that one category of damages that the
state can recover is the cost of the rehabilitation proceeding, as well as the cost of
the subsequent governmental investigation in this case, citing U.S. v. Halper
(1989) 490 U.S. 435, 445. But Halper merely held that investigation costs could
be included as one category of damages under the federal False Claims Act
(FFCA, 31 U.S.C. § 3729 et seq.). (Halper, supra, 490 U.S. at p. 445.) It did not
hold that investigation costs of a claim that is outside the purview of that statute
are reimbursable under the statute, or that investigation costs transmute a common
law fraud claim into an FFCA claim.
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Gov. Code, § 12651, subd. (a)(1) [anyone who “[k]nowingly presents or causes to
be presented . . . a false claim for payment or approval” may be liable under the
CFCA]), we are aware of no successful CFCA case that did not involve either
3
potential or actual harm to the public treasury.
Moreover, the CFCA “is patterned on similar federal legislation” and it is
appropriate to look to precedent construing the equivalent federal act. (Laraway v.
Sutro & Co., Inc., supra, 96 Cal.App.4th at pp. 274-275.) Federal authority
construing the FFCA supports our construction of the CFCA. In Hutchins v.
Wilentz, Goldman & Spitzer (3d Cir. 2001) 253 F.3d 176 (Hutchins), the court
affirmed the dismissal of a claim brought under the FFCA based on fraudulently
inflated legal bills submitted to the United States Trustee4 and United States
Bankruptcy Court in various bankruptcy proceedings. Although the fraudulently

3
The Attorney General cites various cases which purportedly stand for the
proposition that “federal courts find cognizable a claim under the [FFCA] if the
false claim impairs the government’s achievement of public goals and objectives,
irrespective of financial harm to the treasury.” However, the cited cases do not
prove the Attorney General’s proposition, nor do they contradict our conclusion
that the underlying purpose of the FFCA is to deter fraud on public funds. (See
Rex Trailer Co. v. United States (1956) 350 U.S. 148, 150 [action for recovery
under the Surplus Property Act predicated upon false statements made in obtaining
government property]; United States v. Mackby (9th Cir. 2003) 339 F.3d 1013,
1018 [action under the FFCA involving fraudulent demands for Medicare
reimbursement]; Bly-Magee v. State of Calif. (9th Cir. 2001) 236 F.3d 1014, 1017
[qui tam action under the FFCA seeking to recover allegedly misappropriated
federal funds made available to the State of California for vocational rehabilitation
services].) Although the above cases state that financial loss is not a prerequisite
to recovery under the FFCA, they clearly involve claims for public, rather than
private funds.
4
The United States Trustee, who is appointed in each of 21 regions, assumes
various administrative responsibilities in bankruptcy cases, including supervising
bankruptcy trustees and serving as trustee in certain cases. (1 Cowan, Bankruptcy
Law & Practice (7th ed. 1998) § 2.09, pp. 174-175.)
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procured check in Hutchins was signed by a “government agent,” payment came
not from the United States government but from the assets of those in bankruptcy.
Like the CFCA, the FFCA defines “claim” to include requests for property “if the
United States Government provides any portion of the . . . property.” (31 U.S.C.
3729(c).)
The Hutchins court held there was no false claim under the FFCA. The
court first reviewed the legislative history behind the statute. “The False Claims
Act was originally adopted following a series of sensational congressional
investigations into the sale of provisions and munitions to the War Department.
Testimony before Congress painted a sordid picture of how the United States had
been billed for nonexistent or worthless goods, charged exorbitant prices for goods
delivered, and generally robbed in purchasing the necessities of war. Congress
wanted to stop this plundering of the public treasury. At the same time it is
equally clear that the False Claims Act was not designed to reach every kind of
fraud practiced on the Government.” (Hutchins, supra, 253 F.3d at p. 183.)
The Hutchins court then concluded that the bills submitted to the
bankruptcy court and United States Trustee were not within the scope of the FFCA
because “the submission of false claims to the United States government for
approval which do not or would not cause financial loss to the government are not
within the purview of the False Claims Act.” (Hutchins, supra, 253 F.3d at
p. 184.) “[T]he purpose of the [FFCA] ‘was to provide for restitution to the
government of any money taken from it by fraud.’ [Citation.] It was not intended
to impose liability for every false statement made to the government . . . .” (Ibid.)
“Extending the [FFCA] to reach any false statement made to the government,
regardless of any impact on the United States Treasury, would appear to
impermissibly expand standing doctrine and essentially permit any [qui tam]
plaintiff to sue on behalf of the government when false or misleading statements
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are made to any government agent including the courts, the legislature or any law
enforcement officer.” (Id. at p. 184, fn 5.)
The Attorney General contends Hutchins is distinguishable because in that
case the United States Trustee may not have been acting as a bankruptcy trustee,
analogous to the conservatorship role played by the Commissioner in this case, but
merely as an administrator overseeing bankruptcy proceedings. Yet whether the
United States Trustee was serving as a trustee or merely supervising trustees, the
significant similarity remains: false claims were made to assets that never became
public funds, and therefore those claims had no potential or actual impact on the
public treasury.5

5
The Attorney General cites Hayes v. CMC Electronics, Inc. (2003) 297
F.Supp.2d 734 (Hayes), in support of its position and to illustrate the limits of
Hutchins. In Hayes, the United States contracted with AEC Electronics (AEC) for
the purchase of defense equipment, and AEC in turn contracted with the Canadian
Marconi Corporation (CMC) to fill the necessary order. The United States then
resold the equipment to Saudi Arabia under an agreement authorized by the Arms
Export Control Act, 22 United States Code section 2751 et seq. (See 22 U.S.C.
§ 2762, under which the President may sell defense articles and services to eligible
foreign entities.) The United States intervened in a qui tam action brought against
CMC under the FFCA, alleging that CMC submitted fraudulently inflated invoices
for the defense equipment to the United States. The District Court upheld the
FFCA action against the defendant’s motion to dismiss.
The Attorney General, citing 22 United States Code section 2762(a), argues
that in Hayes “[n]o government funds were involved, since Saudi Arabia was
required to protect the federal government against any risk of loss and to advance
the money used to purchase the radios.” But the Hayes court identified several
tangible potential harms to the United States Treasury from the alleged false
claim: “First, the Government paid more money than it otherwise would have paid
if CMCE had disclosed that the radios contained used parts. . . . Second, the U.S.
government is likely to be required to reimburse the Saudi government for the loss
sustained by the Saudi government. Third, the Government suffered damage to
the integrity of the contracting process as Saudi Arabia received used radio sets
despite paying for new ones. Finally, it is possible that Saudi Arabia will have less
money to spend on other defense needs, thereby forcing the U.S. to increase its

(footnote continued on next page)
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The Attorney General argues that the Commissioner, in discharging his
duties under in article 14, is primarily acting not as a trustee of private funds but as
a public officer. He cites Insurance Code section 1059, which provides that in the
performance of any of his duties under article 14, the Commissioner “shall be
deemed to be a public officer acting in his official capacity on behalf of the State.”
(Ins. Code, § 1059.) In that connection he also cites Mitchell v. Taylor (1935) 3
Cal.2d 217. In Mitchell, the Commissioner was appointed liquidator of an
insolvent insurance company and on appeal from an adverse ruling, sought to
avoid a statutory filing fee. The Mitchell court found that the Commissioner was
acting in his official capacity on behalf of the state, and thus was exempt from the
fee under former Political Code section 4295, which stated that “ ‘the state . . . or
any public officer . . . acting in his . . . official capacity on behalf of the state . . .
shall not be required to pay or deposit any fee for the filing of any document or
paper, or for the performance of any official service . . .’ ” (Mitchell, at p. 218.)
In arriving at this conclusion, the Mitchell court reasoned that the “state has an

(footnote continued from previous page)

expenditures by a like amount to obtain the same level of global security. [¶]
Even if the false claim had thus far resulted in only the potential for loss to the
U.S. Government, this would be sufficient for a cause of action under the
[F]FCA.” (Hayes, supra, 297 F.Supp.2d at pp. 737-738.)
Hayes explicitly distinguished Hutchins. “The Third Circuit [in Hutchins]
recognized that ‘the False Claims Act seeks to redress fraudulent activity which
attempts to or actually causes economic loss to the United States Government.’
[Citation.] . . . CMCE’s claim was made for funds in the United States Treasury.
Thus, CMCE’s alleged fraudulent or false statements are within the category
contemplated in Hutchins as actionable under the [F]FCA.” (Hayes, supra, 297
F.Supp.2d at pp. 738-739, fns. and emphasis omitted.) The present case, as
discussed above, resembles Hutchins rather than Hayes, involving funds that were
not part of the public treasury and a fraud that did no damage to the public fisc.
17

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interest” in the liquidation of insolvent insurance companies and that the
Insolvency Act has “made provision for a state officer to protect and advance that
interest.” (Id. at p. 219.)
There is no question that when the Commissioner acts to rehabilitate an
insolvent insurer, he does so as a public officer and furthers a public interest. But
it is equally clear that, when he performs that particular public office, he also
serves as a conservator and trustee on behalf of private policyholders and
creditors. “The commissioner is an officer of the state [citation] who, when he or
she is a conservator, exercises the state’s police power to carry forward the public
interest and to protect policyholders and creditors of the insolvent insurer.” (In re
Executive Life Ins. Co., supra, 32 Cal.App.4th at p. 356.) The Commissioner’s
role as a public officer is wholly consistent with his role as a trustee under article
14. Nothing in Mitchell suggests that, because the Commissioner acts as a public
officer under article 14, he or she transforms the assets acquired pursuant to
Insurance Code section 1011 into public funds.
In sum, we conclude that, the “state funds” necessary to state a claim under
the CFCA only include funds that are in some sense part of the public treasury, the
diminution of which harms or would harm taxpayers. When the Commissioner
takes title to the assets of an insolvent insurer pursuant to Insurance Code section
1011, he holds them as a trustee for the benefit of private parties, and they never
become part of the public treasury. Because the Attorney General alleges that
defendants falsely procured private, rather than public, funds, he may not allege a
claim under the CFCA.
Our holding that such fraud is not within the scope of the CFCA obviously
does not mean that those perpetuating the fraud may escape liability. As the
record makes clear, the Commissioner as trustee of the insolvent insurance
company has sought both substantial compensatory and punitive damages against
18

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at least some of the defendants in this action for their alleged fraud and
misconduct. All that we hold is that the specific remedies under the CFCA are
available not for any fraud against the government but rather one which leads to
potential or actual injury to the public treasury and the taxpayer. No such injury is
present when false claims involve the insolvent insurers’ assets that the
Commissioner holds in trust for private parties.
B. The Attorney General’s Standing to Pursue its Claims in Light of
Insurance Code Section 1037, Subdivision (f).
We turn now to the first question, that is, can the Attorney General pursue
civil remedies, under the CFCA and the UCL, concerning the assets of an
insolvent insurance company for which the Commissioner is acting as conservator
or liquidator, or does the Insurance Code, particularly section 1037, subdivision
(f), give exclusive authority to the Commissioner to bring civil actions?
As discussed in the first part of this opinion, the assets to which the
Commissioner acquires title from an insolvent insurance company under Insurance
Code section 1101 are not “state funds” within the meaning of the CFCA.
Therefore, the Attorney General has no standing to pursue a CFCA claim that
pertains to those assets.
As for the UCL claim, as explained below, we conclude the answer varies
depending upon the remedy sought. Accordingly, each remedy the Attorney
General seeks under the UCL ⎯ restitution, civil penalties, and injunctive relief
⎯ will be discussed in turn.
1. Restitution
“Through the UCL a plaintiff may obtain restitution and/or injunctive relief
against unfair or unlawful practices in order to protect the public and restore to the
parties in interest money or property taken by means of unfair competition.”
(Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126 (Kraus);
19

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see Bus. & Prof. Code, § 17204.) A UCL action may be prosecuted by the
Attorney General, by certain specified local law enforcement officials, “or by any
person who has suffered injury in fact and has lost money or property as a result of
such unfair competition.” (Ibid.)
Business and Professions Code section 17205 provides: “Unless otherwise
expressly provided, the remedies or penalties provided by [the UCL] are
cumulative to each other and to the remedies or penalties available under all other
laws of this state.” Therefore, the fact that there are alternative remedies under a
specific statute does not preclude a UCL remedy, unless the statute itself provides
that the remedy is to be exclusive. (See Stop Youth Addiction, Inc. v. Lucky
Stores, Inc. (1998) 17 Cal.4th 553, 573 (Stop Youth Addiction).) We conclude that
Insurance Code section 1037, subdivision (f) is such an express limit on the
authority of the Attorney General to seek a restitutionary remedy under the UCL.6
As discussed in the previous part of this opinion, Insurance Code section
1057 defines the Commissioner’s basic role in insolvent insurance company
proceedings: “In all proceedings under this article, the commissioner shall be
deemed to be a trustee for the benefit of all creditors and other persons interested
in the estate of the person against whom the proceedings are pending.” Insurance
Code section 1037 further defines the Commissioner’s role when he takes
possession of the property of the insolvent company. It provides in pertinent part:
“Upon taking possession of the property and business of any person in any

6
We have left open the question whether Business and Professions Code
section 17205 precludes the Legislature from impliedly repealing a UCL remedy if
the two are “ ‘ “ ‘clearly repugnant and so inconsistent that the two cannot have
concurrent operation.’ ” ’ ” (Stop Youth Addiction, supra, 17 Cal.4th at p. 574.)
Because we decide the limit on UCL remedies is express in the present case, we
need not decide that question.
20

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proceeding under this article, the commissioner, exclusively and except as
otherwise expressly provided by this article, either as conservator or liquidator:
[¶] . . . [¶] (f) May, for the purpose of executing and performing any of the
powers and authority conferred upon the commissioner under this article, in the
name of the person affected by the proceeding or in the commissioner’s own
name, prosecute and defend any and all suits and other legal proceedings, and
execute, acknowledge and deliver any and all deeds, assignments, releases and
other instruments necessary and proper to effectuate any sale of any real and
personal property . . . .” (Italics added.)
The purpose of article 14 is, like federal bankruptcy law, to ensure the
equitable distribution of an insolvent debtor’s property among creditors, but also
has “the additional and more urgent purpose of protecting an insurance company’s
policyholders, as well as its creditors, by preventing dissipation of the company’s
assets when it is found by the commissioner to be a hazardous condition.”
(Garamendi v. Executive Life Ins. Co. (1993) 17 Cal.App.4th 504, 519.) Insurance
Code section 1037, subdivision (f) recognizes that the Commissioner as trustee has
the exclusive right to protect the interests of policyholders and other creditors.
The statute is therefore in accord with the law of trusts, which generally gives the
trustee, rather than the beneficiaries of the trust, the right to sue on behalf of the
trust. (See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith (1998) 68
Cal.App.4th 445, 461-462; see also 4 Scott on Trusts (4th ed. 1989) § 282, pp. 26-
28.) The Attorney General recognizes that the purpose of article 14 is to preclude
“common-law derivative actions by interested persons which are historically
barred under trust laws.”
A UCL claim for restitution seeks to compel “defendant[s] to return money
obtained through an unfair business practice to those persons in interest from
whom the property was taken, that is, to persons who had an ownership interest in
21

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the property or those claiming through that person.” (Kraus, supra, 23 Cal.4th at
pp. 126-127, fn. omitted.) The Attorney General affirms that the restitutionary
remedy “will inure to the benefit of ELIC’s creditors.”7
There can be little doubt that if, for example, a policyholder attempted a
common law action seeking restitution as a remedy to restore property lost by an
insolvent insurance company, such an action would be precluded by Insurance
Code section 1037, subdivision (f). The suit would fall squarely within the
exclusive role of the Commissioner, as conservator and trustee, to “prosecute and
defend any and all suits and other legal proceedings” pertaining to the insolvent
insurer’s property and business. (Ibid.) There can also be little doubt that a
policyholder’s suit seeking such a restitutionary remedy on behalf of the insolvent
company would be precluded by section 1037, subdivision (f), regardless of
whether the claim for restitution was brought under the UCL or under a common
law theory. In either case, the claim, in substance, would usurp the
Commissioner’s exclusive role as conservator and trustee under article 14
generally and section 1037, subdivision (f) specifically.
It is difficult to see how the situation would be different if it were the
Attorney General, rather than a policyholder, bringing a UCL action for

7
The Attorney General refers in his complaint to “restitution/disgorgement”
remedies. As we explained, “[a]n order that a defendant disgorge money obtained
through an unfair business practice may include a restitutionary element, but is not
so limited . . . . [S]uch orders may compel a defendant to surrender all money
obtained through an unfair business practice of all unlawfully obtained profits
even though not all is to be restored to the person from whom it was obtained or
those claiming under those persons.” (Kraus, supra, 23 Cal.4th at p. 127.) In this
case, although the Attorney General refers to a disgorgement remedy, we
understand his claim as essentially one for restitution, i.e., to return the money to
the insurer’s creditors. Moreover, outside the class action context, a disgorgement
remedy in the sense described above is not authorized. (Id. at p. 137.)
22

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restitution. It is true that the Attorney General is the state’s chief law enforcement
officer, and that restitution may have a collateral law enforcement effect,
punishing the wrongdoer against whom restitution is sought. But the primary
purpose of the Attorney General’s attempt at restitution is to recover lost property
on behalf of an insolvent insurer’s creditors and policyholders. As such, he seeks
to perform an action that is quintessentially within the scope of the
Commissioner’s power as conservator and trustee of the insolvent company.
Because section 1037, subdivision (f) assigns the role of pursuing such
restitutionary remedies on behalf of creditors and policyholders of the insolvent
company exclusively to the Commissioner, we conclude that the Attorney General
may not pursue that remedy.8
The Attorney General cites People v. Pacific Land Research Co. (1977) 20
Cal.3d 10 (Pacific Land Research Co.) in support of his position. In that case the
Attorney General sought civil penalties, injunctive relief, and restitution pursuant
to Business and Professions Code section 175359 against a company alleged to
have made the misrepresentations in connection with the sale of land. This court
rejected defendant’s contention that the Attorney General’s action for restitution

8
The principal exception to the rule that the trustee rather than the
beneficiary may prosecute lawsuits against those who harm trust property is under
certain circumstances in which the trustee itself breaches its duty to the trust and
third parties participate with the trustee in the breach. (City of Atascadero v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at pp. 462-
467.) There is no suggestion in the present case that the Commissioner has
breached its duty as trustee, and we do not consider whether the Attorney
General’s UCL action for restitution would be warranted under such
circumstances.
9
Business and Professions Code section 17535, which pertains to certain
forms of misleading advertising, provides essentially the same remedies as the
UCL under Business and Professions Code section 17203.
23

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was in substance a class action lawsuit that was required to comply with the same
procedural safeguards as private class action suits. (Pacific Land Research Co.,
supra, 20 Cal.3d at p. 16.) As we stated, in distinguishing the Attorney General’s
action from a private class action suit: “An action filed by the People seeking
injunctive relief and civil penalties is fundamentally a law enforcement action
designed to protect the public and not to benefit private parties. The purpose of
injunctive relief is to prevent continued violations of the law and to prevent
violators from dissipating funds illegally obtained. Civil penalties, which are paid
to the government [citations], are designed to penalize a defendant for past illegal
conduct. The request for restitution on behalf of vendees in such an action is only
ancillary to the primary remedies sought for the benefit of the public. [Citation.]
While restitution would benefit the vendees by the return of the money illegally
obtained, such repayment is not the primary object of the suit, as it is in most
private class actions.” (Id. at p. 17.)
While the above is true, it is not significant in the present context.
Although the action by the Attorney General for restitution may be ancillary to the
“primary remedies” tied directly to law enforcement actions, the Attorney General
cannot, when the Commissioner acts as conservator of an insolvent insurance
company, pursue such remedies without trespassing on the Commissioner’s role.
The Attorney General also cites cases holding that the UCL endowed the
Attorney General and the Commissioner with concurrent jurisdiction over
violations of the Insurance Code. In Farmers Ins. Exchange v. Superior Court
(1992) 2 Cal.4th 377, for example, we concluded that a statutory scheme that
permitted those improperly denied a good drivers discount to pursue an
administrative remedy with the Commissioner (see Ins. Code, §§ 1858, 1861.02
and 1861.05) did not preclude the Attorney General’s UCL action, although we
held the Commissioner had primary jurisdiction over the complaint. (Farmers Ins.
24

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Exchange, supra, 2 Cal.4th at pp. 394-395, 398-399.) But in that and other cases
cited by the Attorney General, the Commissioner acted as a regulator, and there
was nothing in the regulatory scheme to suggest an exception to the rule that UCL
remedies are “cumulative . . . to remedies and penalties available under all other
laws of this state.” (Id., at p. 395; see also People ex rel. Orloff v. Pacific Bell
(2003) 31 Cal.4th 1132, 1155 [district attorney may pursue UCL action against
public utility for misleading representations despite the Public Utility
Commission’s concurrent jurisdiction].) In the present case, the Commissioner is
acting primarily not as regulator but as conservator and trustee, and is given, as
discussed, the exclusive authority to act on behalf of the insolvent insurer’s
policyholders and creditors in civil actions. This exclusive authority precludes the
Attorney General from exercising concurrent jurisdiction in a manner that would
essentially duplicate the Commissioner’s legal action. The Attorney General’s
claim for restitution under the UCL does precisely that and is therefore barred by
Insurance Code section 1037 subdivision (f).
2. Civil
Penalties
The Attorney General’s claim for civil penalties under the UCL is a
different matter. Civil penalties are authorized by Business and Professions Code
section 17206, which provides in pertinent part: “(a) Any person who engages, has
engaged, or proposes to engage in unfair competition shall be liable for a civil
penalty not to exceed two thousand five hundred dollars ($2,500) for each
violation, which shall be assessed and recovered in a civil action brought in the
name of the people of the State of California by the Attorney General,” and by
district attorneys, city attorneys and county counsel under specified circumstances.
Thus, unlike Business and Professions Code section 17204, which authorizes that
the injunctive and restitutionary remedies provided in the UCL may be pursued by
25

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“any person who has suffered injury in fact,” section 17206 limits the acquisition
of civil penalties to the Attorney General and other specified government officials.
Further, Business and Professions Code section 17206, subdivision (c)
provides: “If the action is brought by the Attorney General, one-half of the penalty
collected shall be paid to the treasurer of the county in which the judgment was
entered, and one-half to the State General Fund. If the action is brought by a
district attorney or county counsel, the penalty collected shall be paid to the
treasurer of the county in which the judgment was entered.” The recent
amendment of section 17206 by Proposition 64 further provides that the penalty
funds “shall be for the exclusive use by the Attorney General [and other public
officials] for the enforcement of consumer protection laws.” (Bus. & Prof. Code,
§ 17206, subd. (c), as amended by Prop. 64, as approved by voters, Gen. Elec.
Nov. 2, 2004.)
In the present case, defendants are alleged to have violated several laws,
including California Insurance Code section 699.5, precluding foreign
governments from owning or controlling a California insurance company, and the
Bank Holding Company Act, 12 United States Code section 1841 et seq.,
prohibiting a foreign bank from owning an American insurance company.
Defendants concede Insurance Code section 1037, subdivision (f) does not
preclude the Attorney General from bringing a criminal action against them. We
fail to discern a difference, for present purposes, between the Attorney General
seeking criminal penalties or civil penalties. “Civil penalties, which are paid to
the government [citations] are designed to penalize a defendant for past illegal
conduct.” (Pacific Land Research Co., supra, 20 Cal.3d at p. 17.) Such penalties
are not primarily concerned with restoring policyholders’ or creditors’ property.
Thus the public, penal objective of civil penalties under the UCL differs
fundamentally from the Commissioner’s purpose under article 14 of protecting the
26

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beneficiaries of the insolvent insurance company. We conclude that nothing in
article 14 precludes the Attorney General from suing for civil penalties under the
UCL.
3. Injunctive
Relief
We employ the same analysis when it comes to injunctive relief. As we
have recognized, injunctive relief may fall into two categories: injunctions
intended “to remedy a public wrong” (Broughton v. Cigna Healthplans (1999) 21
Cal.4th 1066, 1080) and injunctions primarily intended to resolve “a conflict
between the parties and rectify[] individual wrongs” (id., at p. 1080, fn. 5).
Injunctions sought under the UCL may fall into either category. (See Cruz v.
PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315.)
In line with the above discussion, we hold that when the Attorney General
seeks an injunction that will protect the public and prevent defendants from
committing future unlawful acts, he is fulfilling primarily a law enforcement
function. Such a claim is therefore not prohibited by Insurance Code section
1037, subdivision (f). If however, he seeks an injunction designed to resolve a
conflict or in some way change the relationship between defendants and
policyholders, creditors or others represented by the Commissioner as conservator
and trustee of the insolvent insurance company, that injunction would be
precluded by Insurance Code section 1037 subdivision (f). It is unclear from the
record before us into which category the Attorney General’s requested injunctive
relief falls.
27

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III. CONCLUSION
We conclude that assets held in trust by the Insurance Commissioner
pursuant to Insurance Code section 1011 are not state funds within the meaning of
the CFCA, and that the Attorney General has standing only to pursue civil
penalties and possibly injunctive relief under the UCL.
MORENO, J.
WE CONCUR: GEORGE, C. J.
KENNARD,
J.
BAXTER,
J.
YEGAN,
J.*
ZELON,
J.**

__________________

* Honorable Kenneth R. Yegan, Associate Justice, Court of Appeal, Second
Appellate District, Division Six, assigned by the Chief Justice pursuant to article
VI, section 6 of the California Constituton.
** Honorable Laurie D. Zelon, Associate Justice, Court of Appeal, Second
Appellate District, Division Seven, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constituton.
28

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion State of California v. Altus Finance
__________________________________________________________________________________

Unpublished Opinion

Original Appeal XXX (on certification pursuant to rule 29.8, Cal. Rules of Court)
Original Proceeding
Review Granted
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S119046
Date Filed: August 15, 2005
__________________________________________________________________________________

Court:

County:
Judge:
__________________________________________________________________________________

Attorneys for Appellant:

Bill Lockyer, Attorney General, Andrea Lynn Hoch, Chief Assistant Attorney General, Christopher Ames,
Assistant Attorney General, Larry G. Raskin, Randy L. Barrow and Jan Zabriskie, Deputy Attorneys
General; Shartsis, Friese & Ginsburg, Arthur J. Shartsis, Mary Jo Shartsis and Charles R. Rice for Plaintiff
and Appellant.

__________________________________________________________________________________

Attorneys for Respondent:

Gibson, Dunn & Crutcher, Robert S. Warren, Robert L. Weigel, Marhsall R. King and James P. Clark for
Defendants and Respondents Artemis S.A., Artemis Finance S.N.C., Artemis America Partnership, Aurora
S.A. and Francois Pinault.

White & Case, Travers D. Wood, C. Randolph Fishburn, Richard J. Holwell, Thomas McGanney, Joseph
Nocella; Cleary Gottlieb, Steen & Hamilton, Lawrence B. Friedman and Jennifer L. Kroman for
Defendants and Respondents Crédit Lyonnais S.A., Consortium De Realisation S.A. and CDR Enterprises.

Skadden, Arps, Slate, Meagher & Flom, James E. Lyons, Thomas E. Stevens; Arnold & Porter, John J.
Quinn and John A. Kronstadt for Defendants and Respondents Apollo Advisors, L.P., Leon D. Black, Craig
M. Cogut, John J. Hannan, Lion Advisors, L.P., Pegasus Insurance Partners and Eric B. Siegel.

Sidley Austin Brown & Wood, Theodore N. Miller, Robert A. Holland, Joshua E. Anderson, Richard D.
Bernstein, Virginia A. Seitz and Jacqueline G. Cooper for Defendants and Respondents Aurora National
Life Insurance Company and New California Life Holdings, Inc.

Foley & Lardner, Wm. Carlisle Herbert, Kathleen R. Pasulka-Brown and Susanne R. Blossom for National
Organization of Life and Health Insurance Guaranty Associations as Amicus Curiae on behalf of
Defendants and Respondents Aurora National Life Insurance Company and New California Life Holdings,
Inc.

1

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Jan Zabriskie
Deputy Attorney General
1300 I Street
Sacramento, CA 94244-2550
(916) 322-5181

James P. Clark
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
(213) 229-7000

James E. Lyons
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center, Suite 3800
San Francisco, CA 94111
(415) 984-6400
2

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Request by the U.S. Court of Appeals for the Ninth Circuit to answer the following two questions of law: (1) When the California Insurance Commissioner acquires title to the assets of an insolvent insurance company under California Insurance Code section 1011, do those assets constitute “state funds” within the meaning of the California False Claims Act? (2) When the Insurance Commissioner is acting as conservator or liquidator for an insolvent insurance company, can the Attorney General pursue civil remedies under the California False Claims Act and the unfair competition law concerning the insurance company’s assets, or does section 1037(f) of the California Insurance Code give the Insurance Commissioner exclusive authority to bring such actions?

Opinion Information

Date:	Citation:	Docket Number:
Thu, 08/18/2005	36 Cal. 4th 1284, 116 P.3d 1175, 32 Cal. Rptr. 3d 498	S119046

Opinion Authors
Opinion	Justice Carlos R. Moreno

Disposition
Aug 15 2005	Opinion filed

Dockets
Sep 15 2003	Request to answer question of state law filed   by the U.S. Court of Appeals for the Ninth Circuit (with copies of records)
Oct 20 2003	Filed letter from:   Department of Justice (Deputy Attorney General Jan Zabriskie(, dated 10-14-03.
Jan 14 2004	Request for certification granted   The request for certification directed to this court from the United State Court of Appeal for the Ninth Circuit is accepted. For purposes of briefing and oral argument, State of California is deemed petitioner to this court. Votes: George, CJ., Kennard, Baxter, Werdegar, Chin, Brown and Moreno, JJ.
Jan 30 2004	Certification of interested entities or persons filed   by counsel for defts/aplnts (Artemis S.A., Artemis Finances S.N.C., Artemis America Partnership, Aurora, S.A., & Francois Pinault).
Jan 30 2004	Certification of interested entities or persons filed   by defendants & appellants {Mutuelle Assurance Artisanale de France and Mutuelle Assurance Artisanale de France Vie S.A.}.
Jan 30 2004	Certification of interested entities or persons filed   by defendants & appellants {CDR Entreprises, Consortium de Realisation S.A., Credit Lyonnais S.A. and Credit Lyonnais Securites, Inc.}.
Jan 30 2004	Certification of interested entities or persons filed   appellants Aurora Nat'l Life & New Calif Life Holdings
Jan 30 2004	Certification of interested entities or persons filed   by counsel for defendants & appellants {Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannon, Lion Advisors, L.P., Pegasus Insurance Partners and Eric B. Siegel}.
Feb 3 2004	Request for extension of time filed   by AG asking to March 15, 2004 to file opening brief on the merits. (2/4/04 received amended declaration of service)
Feb 6 2004	Extension of time granted   To March 15, 2004 to file appellants' opening brief on the merits.
Feb 11 2004	Certification of interested entities or persons filed   counsel for appellants: Artemis S.A., Artemis Finances S.N.C., etc.,
Mar 15 2004	Opening brief on the merits filed   in Sacramento by counsel for petitioner {State of California}.
Mar 15 2004	Request for judicial notice filed (granted case)   in Sacramento by counsel for petitioner {State of California}.
Apr 5 2004	Request for extension of time filed   Joint application for extension to file respondents' briefs on the merits, asking to May 14, 2004
Apr 5 2004	Application to appear as counsel pro hac vice (granted case)   on behalf of Richard D. Bernstein for resp Aurora National LIfe Assurance Company & New California Life Holdings, Inc.
Apr 5 2004	Application to appear as counsel pro hac vice (granted case)   on behalf of Richard D. Bernstein for resps Aurora National Life Asurance Company & New California Life Holdings, Inc.
Apr 13 2004	Extension of time granted   To May 14, 2004 to file Respondents' Answer Brief on the Merits.
Apr 13 2004	Application to appear as counsel pro hac vice granted   Richard D. Bernstein of the District of Columbia on behalf of respondents Aurora National Life Assurance Company and New California Life Holdings, Inc.
May 14 2004	Answer brief on the merits filed   By Defendants/Appellants {Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannan, Lion Adviors, L.P., Pegasus Insurance Partners and Eric B. Siegel.}.
May 14 2004	Request for judicial notice filed (granted case)   By Defendants/Appellants {Apollo Advisors, L.P et al.,}
May 14 2004	Answer brief on the merits filed   defts/aplts (Artemis S.A., Artemis Finance S.N.C., Artemis America, Aurora S.A., and Francois Pinault
May 24 2004	Request for extension of time filed   appellant State of California asking to July 6, 2004, to file the reply brief in the merits.
May 28 2004	Extension of time granted   To July 6, 2004 to file appellant's {STATE OF CALIFORNIA} reply brief on the merits.
Jul 2 2004	Application to file over-length brief filed   regarding Appellants (State of California) reply brief. (received in Sacto)
Jul 2 2004	Request for judicial notice filed (granted case)   by Appellants {State of California}. (filed in Sacto)
Jul 7 2004	Reply brief filed (case fully briefed)   by counsel for appellant {State of California}. Over-length brief filed with permission.
Jul 16 2004	Filed:   Objection to the State of California's Reply Request for Judicial Notice filed by Defendants & Respondents (Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannan, Lion Advisors, L.P., Pegasus Insurance Partners and Eric B. Siegel).
Jul 23 2004	Received:   State of California's reply to objection in support of its reply request for judicial notice . (recv'd in Sacto) (To court for permission to file.)
Jul 28 2004	Filed:   State of California's reply to objection in support of its reply request for judicial notice . (filed with permission)
Aug 2 2004	Request for extension of time filed   21st Century Insurance Company requesting to Sept. 6, 2004 to file the application and amicus brief in support of Apollo Advisors, L.P. et al.
Aug 4 2004	Request for extension of time filed   to file ac brief to 9-7-04>> John Garamendi, Insurance Commnr
Aug 5 2004	Application filed to:   appear pro hac vice>>Wm. Herbert for Nat'l Org of Life & Health Health Insurance Guaranty Assns
Aug 5 2004	Received application to file Amicus Curiae Brief   from Bank of New York et al., in support of appellants {CDR Enterprises}.
Aug 6 2004	Extension of time granted   21st Century Insurance Company to file the application and amicus brief in support of defendants and appellants extended to and including Sept. 7, 2004. Answer due within 20 days of the filing of the amicus brief.
Aug 6 2004	Application to appear as counsel pro hac vice (granted case)   Coletter G. Matzzie for amicus curiae Taxpayers Against Fraud.
Aug 6 2004	Received application to file Amicus Curiae Brief   Taxpayers Against Fraud in support of appellant {State of California}.
Aug 9 2004	Extension of time granted   amicus curiae John Garamendi, Commissioner of Insurance time extended to and including Sept. 7, 2004 to file application and amicus curiae brief. Answer due within 20 days of the filing of the brief
Aug 10 2004	Application to appear as counsel pro hac vice granted   The application of Colette G. Matzzie of the District of Columbia for admission pro hac vice to appear on behalf of an amicus is hereby granted.
Aug 10 2004	Permission to file amicus curiae brief granted   Taxpayers Against Fraud
Aug 10 2004	Amicus curiae brief filed   Taxpayers Against Fraud in support of appellant {State of California}. Answer due by any party within 20 days.
Aug 10 2004	Permission to file amicus curiae brief granted   Bank of New York et al.
Aug 10 2004	Amicus curiae brief filed   Bank of New York; Bank of New York Corporate Trust; Chase Bank of Texas; Chase Manhattan trust Company, N.A.; Wells Fargo Bank of Minnesota, N.A.; National Organization of Life and Health Insurance Guaranty Associations and National Structured Settlements Trade Association in support of defendants and appellants {CDR Enterprises, et al.}. *Answer due by any party within 20 days.
Aug 16 2004	Application to appear as counsel pro hac vice granted   The application of Wm. Carlisle Herbert of the State of Illinois for admission Pro Hac Vice to appear on behalf of amicus is hereby granted.
Aug 19 2004	Request for extension of time filed   Appellant (State of California) requesting to Oct. 12, 2004 to file a consolidated answer to amicus briefs by New York Bank et al., and 21st Century Ins. Co.
Aug 25 2004	Extension of time granted   On application of appellant, State of California, and good cause appearing, it is ordered that the time to serve and file a consolidated answer to amicus briefs filed by New York Bank et al. and 21st Century Insurance Company is extended to and including October 12, 2004.
Aug 30 2004	Response to amicus curiae brief filed   By Defendants/Appellants {Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannan, Lion Adviors, L.P., Pegasus Insurance Partners and Eric B. Siegel.}.
Sep 8 2004	Received application to file Amicus Curiae Brief   21 Century Insurance Co. (40k)
Sep 9 2004	Permission to file amicus curiae brief granted   21st Century Insurance Co.
Sep 9 2004	Amicus curiae brief filed   21st Century Insurance Company. Answer due by October 12, 2004.
Oct 6 2004	Response to amicus curiae brief filed   The State of California's answer to amicus briefs filed by New York Bank, et al. and 21st Century Insurance Company.
Oct 6 2004	Request for judicial notice filed (granted case)   by the State of California in support of its answer to the amicus briefs. (recv'd in Sacto)
Oct 20 2004	Opposition filed   to reqt for judicial notice of State of California>>aplts Artemis S.A., etal
Oct 20 2004	Opposition filed   to reqt for judicial notice of State of California>>aplts Credit Lyonnais, S.A., Consortium de Realisation S.A. & CDR Entreprises
Nov 17 2004	Filed:   Application for permission to file a response to oppositions to request for judicial notice - by the State of California.
Nov 18 2004	Filed:   (with permission) State of California's response to objections to its request for judicial notice in support of its answer to amicus briefs.
Dec 2 2004	Change of contact information filed for:   Attorney Robert S. Warren w/Gibson, Dunn & Crutcher LLP is no longer counsel of record for Respondents Artemis S.A., Artemis Finance S.N.C., Artemis America, Aurora S.A. and Francios Pinault. Attorneys of record are now Theodore J. Boutrous, Jr., James P. Clark and Christopher Chorba w/Gibson, Dunn & Crutcher, LLP.
Dec 20 2004	Application to appear as counsel pro hac vice (granted case)   Respondents Artemis S.A. et al. requests Robert L. Weigel and Marshall R. King of New York to appear as counsel pro hac vice on their behalf.
Dec 27 2004	Application to appear as counsel pro hac vice granted   Robert L. Weigel and Marshall R. King of the State of New York to appear on behalf of respondents, Artemis S.A. et al..
Mar 2 2005	Filed:   Letter from Attorney General {counsel for plaintiff and appellant} dated March 1, 2005 informing the court that the State recently agreed to settle this appeal with some of the appellees.
Apr 28 2005	Notice of substitution of counsel   Attorney David W. Shapiro of Boies, Schiller & Flexner LLP substitutes in for Marc S. Harris of Beck, DeCorso, et al. >>>for appellant Rono, LLC.
Apr 28 2005	Application to appear as counsel pro hac vice (granted case)   Appellant RoNo, LLC requests Andrew W. Hayes to appear as counsel pro hac vice on their behalf. (Documents submitted entitled: Notice of Motion etc.; Motion etc. & Declaration of Service.)
Apr 28 2005	Application to appear as counsel pro hac vice (granted case)   Appellant RoNo, LLC requests Olav A. Haazen to appear as counsel pro hac vice on their behalf. (Documents submitted entitled: Notice of Motion etc.; Motion etc. & Declaration of Service.)
May 3 2005	Case ordered on calendar   6/1/05, 1:30pm, LA
May 6 2005	Application to appear as counsel pro hac vice granted   Olav A. Haazen, of the State of New York on behalf of plaintiffs and appellants.
May 6 2005	Application to appear as counsel pro hac vice granted   Andrew W. Hayes of the State of New York on behalf of Plaintiffs and Appellants.
May 6 2005	Supplemental brief filed   by counsel for defts/aplts {Apollo Advisors, L.P., Leon D. Black, Craig M. Cogut, John J. Hannan, Lion Advisors, L.P., Pegasus Ins. Partners & Eric B. Siegel} regarding passage of Prop. 64. (CRC rule 29.1(d))
May 16 2005	Application filed to:   appellants' joint application to divide oral argument time>> appellants Artemis S.A., etal and appellants Apollo Advisors, etal
May 20 2005	Filed:   State of California's objections to supplemental brief of Apollo Defendants. (filed with permission)
May 23 2005	Request for judicial notice granted   The Attorney General's requests for judicial notice, filed 3/15/2004, 7/02/2004 & 10/06/2004 are granted. Judicial notice request of Apollo Advisors et al., filed 5/14/2004, is granted.
May 23 2005	Order filed   The request of counsel for Defendants and Appellants to allow two counsel to argue on behalf of Defendants and Appellants at oral argument is hereby granted.
May 23 2005	Order filed   The request of Defendants and Appellants to allocate to Theodore J. Boutrous, Jr. 10 minutes and James E. Lyons 10 minutes of Defendants and Appellants 30-minute allotted time for oral argument is granted.
May 25 2005	Received:   letter from counsel for Artemis dated 5/25/05 via fax. Co-counsel James P. Clark will be presenting oral argument for Artemis (was Theodore J. Boutrous, Jr.).
May 27 2005	Order filed   The request of Defendant's and Appellant's to allocate to James P. Clark 15 minutes and James E. Lyons 15 minutes of Defendant's and Appellant's 30-minutes allotted time for oral argument is granted.
Jun 1 2005	Cause argued and submitted
Aug 15 2005	Opinion filed   We conclude that assets held in trust by the Insurance Commissioner pursuant to Insurance Code section 1011 are not state funds within the meaning of the CFCA, and that the Attorney General has standing only to pursue civil penalties and possibly injunctive relief under the UCL. Majority Opinion by Moreno, J. ----- Joined by George, CJ., Kennard, Baxter, JJ., Yegan, Associate Justice, Court of Appeal, Second Appellate District, Division Six, and Zelon, Associate Justice, Court of Appeal, Second Appellate District, Division Seven.
Aug 18 2005	Filed:   Letter dated 8/17/05 from Horvitz & Levy LLP, counsel for amicus curiae 21st Century Insurance Company, regarding the courts opinion. There participation as amicus does not appear on the opinion.
Sep 16 2005	Letter sent to counsel: opinion now final

Briefs
Mar 15 2004	Opening brief on the merits filed
May 14 2004	Answer brief on the merits filed
May 14 2004	Answer brief on the merits filed
Jul 7 2004	Reply brief filed (case fully briefed)
Aug 10 2004	Amicus curiae brief filed
Aug 10 2004	Amicus curiae brief filed
Aug 30 2004	Response to amicus curiae brief filed
Sep 9 2004	Amicus curiae brief filed
Oct 6 2004	Response to amicus curiae brief filed

Brief Downloads
Petitioner's Opening Brief.pdf (901360 bytes)
Repondents' Answer Brief on the Merits.pdf (693697 bytes)
Answering Brief of Defendants and Respondents Appollo Advisers.pdf (896042 bytes)

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website

Jun 7, 2011 Annotated by justin goodwin

FACTS: The Executive Life Insurance Company (“ELIC”) became insolvent when many of its policyholders cashed out their policies due to concerns about the company’s large junk-bond portfolio. As authorized by California Insurance Code section 1011, the California Insurance Commissioner (“Commissioner”) acquired title to ELIC’s assets on April 11, 1991, and put the company into conservatorship. Defendant Altus Finance, a French company owned by the French bank Credit Lyonnais, purchased the junk-bond portfolio. Credit Lyonnais is partially owned by the French government. Although state insurance and federal banking law precludes banks and foreign governments from owning a California insurance company, Credit Lyonnais organized investors to purchase ELIC. Several years after the sale of ELIC, the Commissioner learned that Altus and its fronts had made false statements to the commissioner, and the purchasers of ELIC were actually controlled by Credit Lyonnais, a prohibited foreign entity. The Commissioner filed a fraud action against the defendants in February of 1999. In that same month, the California Attorney General intervened in a separate qui tam action against the defendants, seeking treble damages under the California False Claims Act, as well as civil penalties, restitution, and injunctive relief under California’s unfair competition law. PROCEDURAL HISTORY: A qui tam plaintiff filed a sealed whistle-blower complaint against the defendants in February 1999, and the California Attorney General intervened in the qui tam action. The defendants removed the case to federal court under the authority of the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, 1602 et seq. The district court found that California Insurance Code section 1037(f) grants the Commissioner exclusive authority to prosecute the present action, and thus precludes the Attorney General from doing so. The Attorney General appealed, and the Court of Appeals for the Ninth Circuit requested a decision from the Supreme Court of California on the two questions of law set forth below. ISSUES: (1) When the Insurance Commissioner acquires title to the assets of an insolvent insurance company under California Insurance Code section 1011, do those assets constitute “state funds” within the meaning of the California False Claims Act? (2) When the Insurance Commissioner is acting as conservator or liquidator for an insolvent insurance company, can the Attorney General pursue civil remedies under the California False Claims Act and the unfair competition law concerning the insurance company’s assets, or does section 1037(f) of the California Insurance Code give the Insurance Commissioner exclusive authority to bring such actions? HOLDINGS: (1) No, the assets of the insolvent insurer to which the Insurance Commissioner acquired title were not “state funds” within the meaning of the California False Claims Act because they never became part of the public treasury. (2) The Attorney General does not have standing to pursue an action under the California False Claims Act, and may seek only certain types of remedies under the unfair competition law. Although the Attorney General may seek civil damages or an injunction designed to prevent future unlawful acts under the unfair competition law, Insurance Code section 1037(f) precludes the Attorney General from seeking restitution or an injunction designed to resolve conflicts between the parties. ANALYSIS: (1) Although the California False Claims Act (“CFCA”) imposes liability on any person who knowingly makes a false claim to a state officer, the CFCA only applies to claims involving state funds. Gov. Code § 12651(a)(1). An insurance company’s assets held under conservatorship by the Commissioner do not constitute state funds because treating them as such would not further the CFCA’s purpose of protecting taxpayers and the public treasury. Section 12651(a) of the CFCA, which provides for the calculation of penalties based on the amount of damages sustained by the state, suggests that a false claim under the CFCA requires actual harm to the state treasury. Both prior case law and section 1057 of the Insurance Code, however, demonstrate that assets to which the Commissioner holds title do not become part of the public treasury, but are instead held in trust for the benefit of private policyholders. Because the assets in question never became part of the public treasury, they are not state funds within the meaning of the statute, and the Attorney General may not bring an action concerning those assets under the CFCA. (2) As discussed above, the Attorney General does not have standing to bring a claim under the CFCA concerning the assets held under conservatorship by the Commissioner because those assets are not state funds. Whether the Attorney General may bring a claim under the California unfair competition law (“UCL”) depends on the form of remedy sought. The Attorney General’s claim for restitution is precluded by the California Insurance Code. Although the UCL authorizes a plaintiff to seek restitution in order to protect the public and restore to parties money or property taken from them by means of unfair competition, Insurance Code section 1037(f) provides an express limit on the authority of the Attorney General to seek a restitution remedy under the UCL. According to section 1037(f), the Commissioner, as trustee, has the exclusive authority to prosecute and defend suits to protect the interests of policyholders and other creditors. The Attorney General’s primary purpose in seeking restitution is to recover lost property on behalf of an insolvent insurer’s policyholders, an action that is squarely within the scope of the Commissioner’s power as conservator and trustee of the insolvent company. The Attorney General is not, however, barred from seeking civil penalties under the UCL. Section 17206 of the Business and Professions Code limits the acquisition of civil penalties under the UCL to the Attorney General and other specified officials. Unlike restitution, civil penalties are designed to penalize a defendant for illegal conduct; they are not concerned with restoring policyholders’ property. Thus, the purpose of civil penalties is fundamentally different than the Commissioner’s purpose of protecting the beneficiaries of the insolvent insurance company. Finally, whether the Attorney General has standing to seek injunctive relief under the UCL depends on the type of injunction that is sought. Injunctive relief may fall into one of two categories. The first category, injunctions intended to protect the public and remedy a public wrong, falls within the domain of the Attorney General’s law enforcement power and is not barred by the Insurance Code. The second category, injunctions designed primarily to resolve a conflict between parties – here, between the defendants and policyholders – falls exclusively within the domain of the Commissioner and is precluded by Insurance Code section 1037(f). The court determined that it was not clear from the record which type of injunctive relief the Attorney General sought in this case. KEY RELATED CASES: Carpenter v. Pacific Mutual Life Ins. Co., 74 P.2d 761 (Cal. 1937) Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176 (3d Cir. 2001) People v. Pacific Land Research Co., 569 P.2d 125 (Cal. 1997) TAGS: California False Claims Act, unfair competition, Insurance Commissioner, conservator, liquidator, state funds, insolvent insurance company, fraudulent acquisition, fraudulent purchase, core functions, Credit Lyonnais, high-yield debt Annotation by Justin T. Goodwin

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