Old Republic National Title Insurance Co., one of the largest title insurers in Florida, did not fraudulently transfer assets from a bankrupt subsidiary, and th
e bankruptcy court did not err in excluding an expert’s valuation testimony, a federal appeals court decided this week.
“Although the (bankruptcy) court recognized that some of the facts in the case could suggest the Debtor’s intentions were fraudulent, the documented bene
fits to policyholders were more likely the overriding purpose behind the transfers, outweighing any facts implying otherwise,” a panel of the U.S. 11th Cir
cuit Court of Appeals said in its Nov. 24 opinion.
It’s a case that had churned through U.S. bankruptcy and district courtrooms for more than 15 years after an O
ld Republic company’s attorneys reportedly misused trust fund money and sent the company, Attorneys Title Insura
nce Fund, spiraling into financial straits. The complex litigation examined questions about what a bankrupt insur
ance company can do with its assets, how those assets are valued, and how transactions can be challenged by the creditors’ bankruptcy trustee.
The case began in 2008, when the Florida-based debtor, also kno
wn simply as ATIF or “The Fund,” had lost millions of dollars through attorneys’ alleged malfeasance, a subsequent loss
of business, and a drop in the value of its stock market investments
See more beautiful photo albums Here >>>
. The title insurer entered into a joint venture agreement with Old Republic Holding Co. and formed a new firm, Attorneys Title Financial Services.
Florida’s Office of Insurance Regulation in 2011, under then-Commissioner Kevin McCarty, approved the joint v
enture agreement. In 2015, though, The Fund suffered another financial crisis as the value of its assets versus liabilities
dropped again. The OIR notified ATIF that it would refer the company to the Florida Department of Financial Services to place it in receivership, the court noted.
In most cases, financially troubled insurance companies in Florida
are deemed insolvent, not bankrupt, and are put into rehabilitation or liqui
dation proceedings. But by this time in its history, ATIF had transferred most of its assets and was no longer a true insuran
ce company, the court and attorneys explained. That allowed ATIF to fi
le for reorganization and protection under Chapter 11 of the U.S. Bankruptcy Code.
In 2016, Old Republic National Title Insurance, which was founded in 1907, moved its headquarters and domicile from Minnesota to Florida.
The creditors’ trustee, Daniel Stermer, objected to the whole restructuring, arguing that ATIF had control of much more in assets and that creditors should be repaid at a
higher rate. He hired an expert witness who contended that ATIF’s assets were worth some $80 million when transfe
rred to the other Old Republic companies, but The Fund had received less than half of that in return.
The bankruptcy court found that the expert, Allen Pfeiffer, had miscalculated – he included the value of assets that were no longer controlled by ATIF.
“The court reasoned that, although Pfeiffer initially appeared to possess specialized knowledge, his testimony revealed that he did not possess any certif
ications or other credentials as an appraiser or valuation expert, and
he did not ‘rely on textbooks’ when valuing the assets subject to the Master Agreement,” the appellate judges noted.
The creditors’ trustee appealed, but the U.S. District Court for Middle Florida upheld the bankruptcy judge. After further appeal, the 11th Circuit affirmed the district court and the bankruptcy court’s rulings.
“Ultimately, the (bankruptcy) court found that the Debtor had received reasonably equivalent value in exchange for its tangible assets,” Appeals Court Judge Nancy Abu
du wrote in the opinion this week. “In making its determination, the court focused on the parties’ stipulation that the value of the Debtor’s tangible assets was approximately $47 million, that the value of (Old Republic) Title’s assumption of title insurance liabilities was between $45 and $57 million…”