Superintendent of Insurance v. Baker & Hostetler

Citations: 668 F. Supp. 1054; 1987 U.S. Dist. LEXIS 8355Docket: Civ. A. C86-1211

Court: District Court, N.D. Ohio; July 16, 1987; Federal District Court

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The Superintendent of Insurance of New York sought to compel the law firm Baker Hostetler to surrender the files and property of Union Indemnity Insurance Company, which Baker claimed as payment for legal services rendered. The court, presided over by District Judge Ann Aldrich, ordered Baker to deliver all Union Indemnity documents and property exceeding any claimed offset. Union Indemnity was placed in liquidation by a New York court in 1985, directing all parties with property or records belonging to it to submit them to the Superintendent.

Baker asserted an attorney's lien over the documents and refused to comply, claiming a right of set-off, which the court rejected and is currently under appeal. The court confirmed that under both Ohio and New York's versions of the Uniform Insurer's Liquidation Act, the Superintendent has the right to recover all records regardless of any liens. The law provides that the Superintendent automatically acquires title to the insurer’s records, and the law firm's retention of these records does not negate its security interest. A cited case, Fabe v. Merchants and Manufacturers Ins. Co., supports this ruling, confirming that a law firm must comply with similar orders despite holding an attorney's lien.

The court interpreted the Ohio insurers supervision, liquidation, and rehabilitation act (Ohio Rev. Code 3903.01-3903.59) to mandate the delivery of records to the Ohio Superintendent, clarifying that such delivery does not equate to a "surrender" that would turn a secured claim into an unsecured one. The court maintained that the act preserves "otherwise existing legal rights," including attorney's liens. Baker sought to assert that the common law attorney's lien should take precedence over the statutory provisions of the act, referencing the case of Fabe, which emphasized that attorney's liens must yield to public policy as defined by the act. Although the act does not explicitly mention attorney's liens, it is designed to protect the interests of insured, claimants, creditors, and the public, thus requiring Union Indemnity's records to be handed over to the Superintendent, despite Baker's lien. Baker argued that the Fabe decision conflicts with the earlier published case of Foor, which mandated the attorney to return records under a retaining lien while allowing the debtor to provide security for unpaid fees. This court noted that Foor did not involve insolvency, and thus did not conflict with the federal bankruptcy code. Additionally, it raised concerns that requiring security in Baker's case might violate the act's preference rules. If Baker's lien is confirmed as a security interest, it would be treated as a secured creditor entitled to full payment. The Superintendent is expected to adhere to New York law in compensating Baker. The court concluded that Foor, Fabe, and its current ruling collectively aim to safeguard both debtor access to records and creditor payment rights. Baker asserts an attorney's lien on various assets belonging to Union Indemnity, including mortgages and trust funds, and refuses to deliver these to the Superintendent, claiming a right of set-off for approximately $300,000 in fees owed and disputing ownership of the property. The court previously rejected Baker's set-off claim, but an appeal on this issue is pending before the Sixth Circuit. If the appeal is successful, Baker would offset its fees and only need to deliver the remaining balance.

Baker is required to return all assets belonging to Union Indemnity that exceed its claimed offset amount to the Superintendent. Under Ohio law, claims by Ohio residents against any property in Baker's possession must be submitted either to an Ohio ancillary receiver, which does not exist in this case, or to the New York Superintendent. Consequently, the New York court managing the liquidation will resolve any other interests in the property held by Baker. This possession does not change the rights of third parties regarding their claims to the property. Baker is ordered to deliver all Union Indemnity-related property to the Superintendent, retaining only the amount of its offset claim until its appeal is resolved by the Sixth Circuit. If the Sixth Circuit denies Baker's claim, it must then surrender that property to the Superintendent. Additionally, Baker must provide all relevant books, accounts, and records related to Union Indemnity. Baker retains the right to assert any claims against the property in the New York court overseeing the liquidation. The court has issued a memorandum and order granting summary judgment for the plaintiff.