State of New York vs Trump, et al - the civil fraud case against the Trump Organization

[Foggy]

I think Judge Engoron will figure this out on Earth Day. That might be a really entertaining court hearing.

[Dr. Ken]

Clock is ticking

[chancery]

A New York attorney who may shortly be having some uncomfortable discussions with the disciplinary committee has filed a motion with supporting papers to vacate the judgment entered by Judge Engoron.

https://iapps.courts.state.ny.us/nyscef ... T_PLUS_Q==

This will give you the gist:

WHEREFORE, unless the Court can demonstrate how a state could “lockdown” its entire population to keep COVID away from the elderly while simultaneously mandating COVID patients into nursing homes without committing Depraved Indifference Murder, “the Judgment” must be vacated for lack of subject matter jurisdiction because the New York Constitution does not empower the Judiciary to entertain prosecutions brought by an Attorney General who tyrannically licensed the Governor to commit Mass Depraved Indifference Murder of U.S. Citizens as a matter of logic.

In other news, Trump (or maybe Knight Specialty Insurance) has just filed papers to justify the $175 million appeal bond. They weren't on twitter last I looked. I'll look at them next.

[chancery]

Hmm, aggressive. They're proceeding by order to show cause for an order justifying the bond instead of by regular motion and also seeking costs, claiming that the NYAG's exception was "unnecessary."

However, to be fair, preceding by order to show cause is the usual way to ask the judge to shorten the response time, and the regular motion timetable is too lengthy to accomodate the hearing date already set by Judge Engoron. Also, an award of costs for an unnecessary exception is authorized by the statute, but I doubt that the judge will be awarding costs to Trump.

https://iapps.courts.state.ny.us/nyscef ... koacqK6g==

Shah Affirmation in support of motion to justify

https://iapps.courts.state.ny.us/nyscef ... WEiCtTKA==

There are lots of exhibits; I've just picked a couple. This is Exhibit E, a collateral pledge agreement between Trump and the insurance company.

https://iapps.courts.state.ny.us/nyscef ... X2n67vuQ==

Exhibit F, a securities account statement

https://iapps.courts.state.ny.us/nyscef ... e_PLUS_Q==

Serio Affirmation in support of justification

https://iapps.courts.state.ny.us/nyscef ... US_MmraQ==

Affirmation of urgency (this is part of shortening the briefing schedule under the order to show cause)

https://iapps.courts.state.ny.us/nyscef ... _ACgoNxw==

Joint memorandum submitted by Trump et al. and by Knight Specialty in support of justification

https://iapps.courts.state.ny.us/nyscef ... 6lZJUsQQ==

The last one, the brief (joint memorandum) is the key document. Haven't looked at it yet, although in one of the affidavits I saw a few lines arguing that because they are authorized under Delaware law to write surplus line (non rate-regulated specialty insurance) policies in any other state, it doesn't matter that they aren't authorized to by NYS to write surety policies in NYS. I dunno ...

[johnpcapitalist]

A New York attorney who may shortly be having some uncomfortable discussions with the disciplinary committee has filed a motion with supporting papers to vacate the judgment entered by Judge Engoron.

https://iapps.courts.state.ny.us/nyscef ... T_PLUS_Q==

The attorney filing this appears to be a full-on SovCit anti-vax nutjob with all the usual warning signs. Other quixotic cases I could find in a quick Google search:

• A 2021 case: https://casetext.com/case/stone-v-austin-2
• https://www.justsecurity.org/wp-content ... 7-2024.pdf
• https://dockets.justia.com/docket/new-y ... 006/456972
• The incident that may have sent him over the edge, a dispute with his sister over his house, inherited from his mother back in 2020: https://trellis.law/doc/147951169/petit ... ffirmation
• https://www.pacermonitor.com/public/cas ... sq_v_Cuomo

[chancery]

I've copied the first five paragraphs of the brief. Note that the OCR is a little wonky; there may be inaccuracies.

In short, they argue that it's OK for surplus line companies to write surety bonds (note that "Dave Kingman, Esq." said that it's not, but perhaps this is an obscure corner of the market he doesn't know about), that they have been approved since 2021 by the voluntary accrediting organization that checks surplus line companies (note that the long daily beast article I linked to upthread said that they had _not_ been so approved), they have adequate collateral, and that even if the collateral fails, they have adequate reinsurance reserves to cover the whole amount of the bond.

The most initially impressive thing that I've seen so far is that they have an affidavit from a former NYS Superintendent of Insurance saying that the surety is adequate. If the affidavit holds up to scrutiny, these papers could represent an atypical moment of lawyerly competence from Trump's counsel. Or, it could be the usual combination of bullshit and sloppy work, I dunno. To repeat, I've never practiced in this area. And all I've read of the brief is what I've quoted.

Of course, lacking a certificate of qualification from the NYS Department of Financial Services, they should have explained all this initially. I don't think their note of indignation at having to justify the bond is going to play well with the judge.

KSIC is a respected, well-capitalized, Delaware-domiciled insurer that has long underwritten surety bonds and other types of insurance placed around the country. KSIC is an eligible excess lines insurer in the State ofNew York consistent with applicable law and is authorized to underwrite surety bonds on an excess line basis. The $175 million bond is collateralized by $175,304,075.95 in cash held in a Charles Schwab account pledged to KSIC, and KSIC has the right to exercise control over that account. KSIC also independently maintains more than $539 million in assets and $138 million in equity and has access to more than $2 billion in assets and $1 billion in equity, of which nearly $1 billion is cash and marketable securities, pursuant to a reinsurance agreement with its parent company, Knight Insurance Company (“KIC”).

The Excess Lines Association of New York (“ELANY”), which acts as a service provider to the New York Department of Financial Services (“DFS”) in monitoring and supervising the excess lines market, has deemed KSIC sufficiently collateralized to make excess line placements in New York. New York, as the nation’s commercial center, has long welcomed excess lines carriers. Here, KSIC’s solvency and substantial financial credibility, as bolstered by cash collateral in the full amount of the bond and a reinsurance agreement with KIC, enable it to satisfy all obligations under the bond. By any standard, KSIC has therefore provided assurance to the Plaintiffjudgment creditor that she can collect the designated amount if the award is affirmed on appeal.

BACKGROUND

On April 1, 2024, Defendants posted an undertaking of $175 million, secured by $175 million in cash collateral, with KSIC as the surety. NYSCEF Doc. No. 1707. In its revised filing on April 4, 2024, KSIC attached (1) a joint limited power of attorney authorizing Mr. Shah to execute “undertakings and contracts of suretyship”; (2) KSIC’s financial statement, as certified by Mr. Shah; and (3) KIC’s financial statement, as certified by Mr. Shah. Id.\ see also Affirmation of Amit Shah (“Shah Aff”), Exs. H, J. That same day, the NYAG filed a notice ofexception to surety pursuant to CPLR § 2506(a) stating that KSIC had not provided a “certificate of qualification pursuant to CPLR § 1111.” NYSCEF Doc. No. 1708. As set forth more folly in the Shah
Affirmation, KSIC is authorized to underwrite surety bonds in this State on an excess line basis. Shah Aff 3-14. Specifically, KSIC is authorized to issue surety bonds in its home state of Delaware as of December 2013 and was approved for excess line eligibility in New York as of June 2021.

Moreover, the bond is properly secured. Shah Aff. $$ 18-31. KSIC entered into a
Collateral Account Pledge and Security Agreement with the Trust, pursuant to which the Trust granted KSIC a security interest in a Schwab brokerage account containing $175,304,075.95 in cash. Id. $ 19; Ex. E. KSIC, the Trust, and Schwab also entered into a Pledged Asset Account Control Agreement, by which KSIC can exercise the right to control the account within two business days by submitting a letter to Schwab of its intent to activate that control. Id. ^ 23; Ex. G. Thus, the $175 million bond is fully collateralized by $175 million in cash.

In addition, KSIC, both individually and through a reinsurance agreement with its parent, KIC, maintains sufficient security for its surety on the bond. Id. $$ 24-31. While it is inconceivable that any shortfall could arise given the $175 million bond is secured by $175 million in cash, KSIC has an agreement with KIC by which KIC reinsures 100% of KSIC’s risk. Id. $ 26; Ex. I. As reflected in the financial statements annexed to the undertaking, as of December 31, 2023, KSIC had $539,284,552 in assets and $138,441,671 in equity (exclusive of the $175,304,075.95 in cash collateral), and KIC had $2,177,780,679 in assets and $1,005,031,058 in equity. Id. 11$ 25-27; Exs. H, J. KIC specifically has $56,456,561 in cash and $937,343,258 in marketable securities to support its reinsurance obligations. M. $ 31; Ex. J. Gregory Serio, a former New York State Superintendent of Insurance, concurs in his expert affirmation that the surety on the undertaking given by KSIC is sufficient. Affirmation ofGregory Serio (“Serio Aff”).

[chancery]

The attorney filing this appears to be a full-on SovCit anti-vax nutjob with all the usual warning signs.

Thanks JPC. All the usual warning signs indeed. Here's footnote No. 1 from the 2021 decision, Stone v. Austin.

According to the Complaint, “PLAINTIFF HOUSE OF STONE 76” an independent sovereign nation pro tempore governed by a demure, dare I say bashful, Kantian Autocracy-established by discovery of unclaimed sovereign title abandoned by violation of the aforesaid Declaration of Covenants and Restrictions dated July 4, 1776, running with all territory defining the United States; including all that certain parcel situate and being in the South Setauket, Town of Brookhaven, County of Suffolk and State of New York, designated as Lot Nos. 1110 and 1111 on a certain map entitled, ‘Map of Strathmore, Section 12,' filed in the Office of the Clerk of the County of Suffolk on December 28, 1964 as Map No. 4222, known as 4 Blackwell Lane, Stony Brook, more particularly bounded and described within SCHEDULE ‘A' attached herewith. HOUSE OF STONE 76 shall retain sovereign title to all territory described within SCHEDULE ‘A' until those believed responsible for the treason are brought before a military tribunal and executed if found guilty. Thus, its raison d'etre and national motto: ‘Play stupid games, win stupid prizes.' When the Military fulfills its duty by completing its task of removing said tyranny from the land, the greater estate of AMERICA shall absorb the lesser estate of HOUSE OF STONE 76 by doctrine of merger. (Sniff, sniff, wipe tear from eye, etc.).” However, because an entity such as House of Stone 76 cannot appear in federal court pro se, in the absence of representation by an attorney admitted to practice in this Court, its claims cannot proceed.

but of course sad as well. The NYS and NYC bar associations, together with the attorney regulators within the NYS Unified Court System, have some very active and well-publicized groups and programs to assist lawyers struggling with issues of mental health and substance abuse.

A few years ago one of my required "ethics and professionalism" CLE courses was given by an attorney who was able to put his personal and professional life back together again after getting disbarred for his behavior while an alcoholic. It was an impressive and moving presentation. The programs are confidential, so we'll never know if any of them have reached out to Mr. Stone.

[chancery]

https://twitter.com/nycsouthpaw/status/ ... 7286047181

southpaw
@nycsouthpaw
+ it took about ten seconds from opening the account security agreement to find a significant drafting error, which makes the signature page look like it belongs to a different agreement (DJT Jr’s attestation identifies the wrong secured party—a Chubb co.)

, and not a surprise coming from the Trump Organization and its stalwart counsel.

However, these things happen when you are putting papers together under stress and tight deadlines, particularly when you're collaborating with other counsel with whom don't have a previous working relationship. This is likely fixable, and if it is fixed, it'll be of no consequence.

[chancery]

On the other hand, it could also be a sign of inner rot. The surety guy is on it.

https://twitter.com/DaveKingman8/status ... 820004451

Dave Kingman, Esq.
@DaveKingman8
Almost the entire legal discussion is wrong. And I don't how their expert -- a former Superintendent of Insurance -- submits an affirmation stating that an excess lines insurer is authorized write surety bonds in New York. It's astonishing.

https://twitter.com/DaveKingman8/status ... 0429443118

Dave Kingman, Esq.
@DaveKingman8
I don't know why they submitted papers that aren't true. They have an argument -- that they have sufficient collateral and that Knight Specialty is authorized and does business elsewhere that the Court should accept the bond. Arguing that excess lines = surety is very dubious.

[noblepa]

The last one, the brief (joint memorandum) is the key document. Haven't looked at it yet, although in one of the affidavits I saw a few lines arguing that because they are authorized under Delaware law to write surplus line (non rate-regulated specialty insurance) policies in any other state, it doesn't matter that they aren't authorized to by NYS to write surety policies in NYS. I dunno ...

IANAL, but I don't see how the state of Delaware can authorize a company to write insurance policies in New York, without regard to the laws of New York.

Is it possible that Delaware is saying that "if you write a policy in any other state, you aren't violating any Delaware law"? If so, that doesn't mean that doing so doesn't violate the laws of that other state.

I do know that NY has some of the toughest laws regarding the writing of insurance policies of any state. That is why some of those policies you see advertised on late night TV, have fine print saying "Not available in New York".

[chancery]

I gather that NYS heavily regulates "admitted" casualty and life insurance companies, which do such a large volume of business that rates and contractual terms are set in reference to actuarial analysis of prior experience.

Out-of-state surplus line companies handle risks that the admitted companies won't touch. Think Lloyds of London, to which you turn when you want to insure a starlet's legs or a musician's hands. Or more prosaically, the risks involved in dismantling a gigantic turbine and hauling it for installation in another plant on the far side of the state. They do a large volume of business in NYS but are more lightly regulated, mostly as to financial resources rather than terms, conditions, and rates.

Read Serio's affirmation at ¶¶ 13, 21-23. But also see my next post.

[chancery]

Gregory Serio, the former Superintendent of Insurance who provided the expert affirmation, does seem to be the real deal as far as expertise goes, having spent much of his career in various capacities at the NYS Department of Insurance (now the Department of Financial Services).

However Serio's legal analysis, which is mirrored in the brief, strikes me cursory and includes no support at all from caselaw or factual precedents. Serio opines that he sees "no reason why KSIC may not lawfully underwrite surety bonds in New York as an eligible excess line insurer approved by the Excess Line Association of New York." That's not the most reassuring kind of opinion. And of course Dave Kingman, Esq. says that it's wrong.

Serio makes no statement, for instance, to the effect that an out-of-state excess line insurer has ever written a surety bond in New York State, let alone a bond for an appeal in New York State courts. You'd think that the Serio would either know about that from his own experience or would know who to talk to to find out. That's a pretty big dog that didn't bark.

The absence of such a statement makes Serio's affidavit seem cagy to me, and makes me wonder if he has failed to address other problematic issues. For instance, I don't know, because I haven't looked, whether the NYAG could sue the parent reinsurance company directly, in a New York court, and obtain an enforceable judgment. We'll see what the NYAG has to say. And I hope that we'll hear more from Dave "Surety Law" Kingman, Esq., whose illuminating and prescient tweets on the subject seem to have held up so far.

[chancery]

Serio also doesn't address the issue of the New York law that limits how much money state-regulated surety companies can post on a single bond to 10 percent of what’s referred to as the firm’s total “capital and surplus.”

I understand their legal argument to be that the law doesn't apply to them, since they are an out-of-state company that's not regulated as a surety company by NY (although it is indirectly regulated by NY via the Excess Line Association of New York and principally regulated by its home state of Delaware).

And since Trump can't get a NY surety, Judge Engoron has discretion to approve other forms of security, as I have argued, and Dave Kingman agrees. (They haven't formally asked for that kind of approval, but I suspect that that won't matter. Judge Engoron isn't a formalistic kind of guy.)

But Trump and Knight still have to persuade Judge Engoron that Knight Specialty's relationship with its parent reinsurance company (recall the discussion in the Daily Beast article about how reinsurance from affiliated companies under common control can be extremely dodgy, and sometimes worth very little) provides financial security that's comparable to that provided by New York's 10 percent rule for NY-regulated surety companies. And while Serio's affirmation says, in effect, that the parent company is rolling in dough, so no problem, he doesn't make that specific analysis, which, again, seems cadgy to me.

Also, I'm curious about the agreement between Trump and Knight that lets Knight control the collateral account, but only after it gives Trump two days notice. It only takes a few seconds for an account-holder like Trump to send an electronic order to transfer the balance of the account somewhere else, and I believe that inter-institution payment methods exist that can execute on a same-day basis, comparable to same-day funds between banks. So I wonder whether the ostensible protection provided by the control agreement is in fact illusory.

[chancery]

This post, referring to the 10 percent rule for surety companies, is interesting:

https://twitter.com/foolintheforest/sta ... 7026833521

George Wallace
@foolintheforest
The NY reg sounds like a pretty standard rule. In California, we allow both admitted insurers (licensed in CA) and non-admitted insurers (not licensed in CA) to issue appeal bonds, but the amount of security required w/ a non-admitted/excess lines company is substantially higher.

[Sam the Centipede]

This discussion is fun! I feel like a lay onlooker at The Anatomy Lesson of Dr. Nicolaes Tulp (by Rembrandt):

► Show Spoiler

I wonder if Judge Engoron might say "ok guys, I really don't have time for this crap, you say you have all this cash, easily available, so you won't mind putting it into the court's escrow account for a few weeks, will you? thx, byee!"

[andersweinstein]

Dave Kingman, Esq: You can’t be serious. Surety you jest.
Knight brief: I am Serio. And don’t call me Surety.

[Tiredretiredlawyer]

[p0rtia]

Thanks, chancery et al.

Fascinating stuff; could not remotely follow it without your guidance.

[Uninformed]

[chancery]

I missed this from last night:

Dave Kingman, Esq.
@DaveKingman8
I have a headache trying to read the world salad on p. 6 of their brief, referring to financial guaranty insurance (which is a separate kind of insurance having nothing to do with appeal bonds and which is completely irrelevant here) and trying to tie surety to excess lines.

[realist]

Thanks Chancery.

Analysis very much appreciated.

[RTH10260]

MTN Ben Meiselas stretches out his opinion and our patience

[raison de arizona]

I find it hard to believe that a company that would do business with tfg is full of shite.
Bwahaha.
https://x.com/MuellerSheWrote/status/17 ... 7211097275

NEW: Ok, I'll say again that I'm no expert, but the company backing trump's $175M says it can do so because it's an excess line insurer in NY, registered with ELANY. But I went to the ELANY website and Knight Specialty Insurance is NOT ON THE LIST. 1/ https://elany.org/reports.aspx?id=r1008

[chancery]

Mueller She Wrote, who is not a lawyer or a consistently reliable lay researcher, isn't paying enough attention here.

Knight Specialty doesn't claim to be "registered" with ELANY. It argues that it "meets ELANY's requirements for excess line eligibility," relying on the 6/10/21 letter from ELANY to Knight Specialty (Shah Affirmation Ex. C), which states:

In response to Knight Specialty’s application for excess line eligibility in New York, this is to advise you that Knight Specialty has provided sufficient documentation to establish that it meets New York’s eligibility requirements. Those requirements are that the applicant maintains a minimum policyholder surplus of $47,000,000 and that it is licensed in its home state to write the lines of business it seeks to write in New York on an excess line basis. As a result, transactions submitted to ELANY by excess line brokers, which Knight Specialty underwrites, will be processed in the ordinary course of business provided they otherwise meet the legal requirements for excess line transactions.

ELANY will conduct a complete analysis to determine if Knight Specialty meets ELANY’s requirements for publication of the company’s name on ELANY’s list of New York E&S Insurers.

Based on the second paragraph, I've speculated that maybe Knight Speciality never followed through by completing the application process for appearing on ELANY's list. However, the letter suggests that it's not necessary to appear on the list to be authorized to write excess transactions, since it states in the first paragraph that "transactions submitted to ELANY by excess line brokers, which Knight Specialty underwrites, will be processed in the ordinary course of business." So possibly appearing on the listing is something that's useful for marketing but not a legal requirement.

The ELANY website has a list of "Limitations on Which Types of Coverage Can Be Placed By Excess Line Licensees."* https://www.elany.org/f.aspx?f=1401

Paragraph 5 states:

Financial Guaranty Insurance, as defined in Insurance Law § 6901, cannot be written as excess lines insurance. The complete definition of this type of coverage is beyond the scope of this paper.

Insurance Law § 6901 begins: "Financial guaranty insurance" means a surety bond," plus other kinds of an insurance policy," and goes on with a confusing list of additional qualifications, exceptions, and cross-references that I haven't tried to figure out.

However, if that gives you the idea that ELANY is saying that surety bonds can't be written by excess lines insurers, ELANY also states that excess lines insurers can write the types of policies enumerated in Insurance Law § 1113, which includes (at subsection (a)(16)(F)) "Becoming surety on, or guaranteeing the performance of, bonds and undertakings required or permitted in all judicial proceedings...." The ELANY list of limitations also states: "[m]ost types of property, casualty and surety coverages can be written as excess and surplus lines ..."


I'm not going to attempt to unscramble this statutory spaghetti.

I do think, however, that there is something cadgy and disingenuous about the way Knight Specialty has framed its contention, namely that it has been "approved for excess line eligibility" by ELANY. I hope that the NYAG has lawyers who understand the New York insurance statute and can explain it clearly.

Judge Engoron has signed the order to show cause, https://iapps.courts.state.ny.us/nyscef ... cCKCNTSA==, and the NYAG's papers are due on April 19, this Friday.

________
* Note, however, that the reference to "Licensees" refers to licensed excise line brokers. While I gather that it's typical for a broker to be involved in placing insurance, I don't know if the Venn diagram of insurance that cannot be placed by excess line brokers is perfectly congruent with the Venn diagram of insurance that cannot be written by nonresident excess line insurers.

[RTH10260]

Mueller She Wrote, who is not a lawyer or a consistently reliable lay researcher, isn't paying enough attention here.

Knight Specialty doesn't claim to be "registered" with ELANY. It argues that it "meets ELANY's requirements for excess line eligibility," relying on the 6/10/21 letter from ELANY to Knight Specialty (Shah Affirmation Ex. C), which states:

IANAL just wondering if a letter from late 2021 is still sufficient, if it not ought to have been updated more recently with more recent financial data?