Monday, July 31, 2006
Garamendi May Suspend Insurance Agent’s Rights Before Hearing—C.A.
By a MetNews Staff Writer
State law allowing the insurance commissioner to suspend an insurance agent’s right to transact business without first conducting a hearing where the agent has been charged with certain felonies is constitutional, this district’s Court of Appeal ruled Friday.
Div. Three affirmed Los Angeles Superior Court Judge Dzintra Janavs’ order denying Adnan M. Yousef’s petition for writ of mandate and granting the petition of Yousef’s company, American Liberty Bail Bonds, Inc., on the ground that the statute allowing such suspensions applies only to natural persons.
Yousef and American Liberty, of which Yousef was the sole shareholder, were licensed by the Department of Insurance to act as a bail agents. In 2003 American Liberty employed about 25 people, had more than 15 offices in Southern California, and issued bail bonds in the total amount of $180 million.
In 2004 the Orange County District Attorney’s Office filed a felony complaint against Yousef, American Liberty and others, charging them with conspiracy to commit a kidnapping kidnapping for extortion conspiracy to commit unlawful bail solicitation 20 counts of undertaking bail without a license conspiracy to commit grand theft conspiracy to knowingly commit performing a notarial act on a false or forged trust deed conspiracy to falsify a trust deed grand theft and conspiracy to commit embezzlement.
The complaint alleged that when a man for whom a bail bond had been posted refused to sign a bail bond agreement, Youseff schemed to abduct the man from his home, bring him to American Liberty’s offices, and force him to sign an agreement. It also alleged that Yousef employed unlicensed bail agents and forged a deed of trust to secure a lien against property without the owner’s knowledge or consent.
Nine days after the complaint was filed, Insurance Commissioner John Garamendi issued an order, without first conducting a hearing, immediately prohibiting Yousef and American Liberty from participating in the business of an insurer.
The order was made pursuant to Insurance Code Sec. 1748.5 which also provides for a post-deprivation hearing, and further provides that if the criminal proceedings are terminated other than by a conviction, a suspension order shall be deemed rescinded as if it had not been issued.
Yousef and American Liberty petitioned the Superior Court for a writ of mandate, arguing that the statute violated their due process rights by denying them a pre-deprivation hearing and by limiting the post-deprivation hearing to matters other than the truth of the criminal allegations, and that the statute is ambiguous. American Liberty also argued that the statute only applies to natural persons.
Yousef appealed the portion of Janovs’ judgment denying his petition, and Garamendi appealed the portion granting relief to American Liberty.
Justice Richard D. Aldrich, writing for the Court of Appeal, said that the outcome was governed by the U.S. Supreme Court’s opinion in FDIC v. Mallen (1988) 486 U.S. 230, in which the court upheld a nearly identical statute allowing the FDIC to suspend a bank president from office.
Aldrich said that Sec. 1748.5 promotes the state’s interest in “preserving the insurance industry, and hence the public’s confidence in that industry” and is “premised on a legislative finding that the commissioner needs tools to immediately suspend persons against whom certain types of criminal charges have been filed” and who “may threaten the financial solvency of insurers or cause financial or other injury to people.”
The judge found that the state’s interests outweighed Yousef’s interest in being able to conduct business, saying:
“Given that our Legislature has made findings concerning how to
maintain the integrity of the insurance industry, substantial justification exists to suspend subject persons, like Yousef, without a predeprivation hearing where they have been charged in an information with a [felony] crime . . . .”
The justice said that the fact that an information was filed against Yousef by an agency independent from the commissioner and had to be based on probable cause provided “adequate assurances” that the suspension was justified.
Aldrich also rejected Yousef’s claim that the post-deprivation hearing provided for by the statute was “illusory” because it did not allow him to produce evidence rebutting the charges in the complaint, but was limited to whether the offenses charged were of the types listed in the statute and whether a failure to immediately issue the order would threaten the financial solvency of an insurer or cause financial or other injury to any person.
But Aldrich explained:
“Due process requires an opportunity to be heard at a meaningful time and in a meaningful manner. To be meaningful, a hearing need not be a full adversarial one. To the contrary, a hearing that excludes the issue of the subject person’s guilt or innocence on an underlying criminal charge comports with due process.”
Aldrich pointed out that allowing a hearing on the merits would raise collateral estoppel and fifth amendment issues.
Aldrich also rejected Yousef’s argument that the statute was void for vagueness, saying:
“It . . . seems quite clear that the statute is aimed at prohibiting those crimes that would impact the insurance business. For example, the crimes alleged against Yousef all arise out of conduct taken in connection with his bail bond business—kidnapping a man and holding him until he signed a bail agreement and forging documents to obtain security. These are the quintessential types of crimes at which the statute is aimed.”
Justices Joan D. Klein and H. Walter Croskey concurred in the opinion.
The case is American Liberty Bail Bonds, Inc. v. Garamendi, B183344.
Copyright 2006, Metropolitan News Company