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State of North Carolina v. Stockton5/19/1998
Plaintiff State of North Carolina, on relation of Commissioner of Insurance James E. Long (Commissioner Long), acting as liquidator of the Investment Life Insurance Company of America (ILA), appeals the trial court's grant of defendants' motion to dismiss plaintiff's complaint for failure to state a claim. We affirm.
Background information as alleged in plaintiff's complaint is as follows: In 1985, four investors, including James E. Peterson (Peterson), a real estate developer and Winston-Salem resident, formed First Republic Financial Corporation (FRFC) as a holding company for purposes of procuring a South Carolina life insurance company, Investment Life and Trust Company (ILT). Peterson became the controlling shareholder of FRFC.
In 1989, Peterson and the other investors decided to purchase Triad Life Insurance Corporation (Triad), located in North Carolina, and to merge ILT into Triad. Acquisition of Triad required approval by the North Carolina Department of Insurance (the Department) pursuant to the "Insurance Holding Company System Regulatory Act" contained in Chapter 58, Article 19, of the North Carolina General Statutes.
The law firm of Petree Stockton & Robinson, counsel for Peterson in his personal and business matters since approximately 1983, was retained by FRFC and ILT to obtain the requisite approvals of the acquisition and merger. Defendant Petree Stockton, L.L.P. (Petree; the law firm), is the successor entity to Petree Stockton & Robinson and thus is a named defendant herein. Defendant James Iseman (Iseman), at that time a Petree partner, was the responsible attorney and billing attorney for the acquisition and merger account. Attorneys Beth Hedberg (Hedberg), a former associate with Petree, and Eileen Taylor (Taylor) performed work on the account. Following certain filings with the Department by the law firm, acquisition of Triad by ILT was approved by the Department 1 December 1989.
At the time Triad was acquired, FRFC owed $4 million to Trust Company Bank of Atlanta, Georgia (Trust Company). This debt was personally guaranteed by Peterson and two other individuals sitting on the Board of Directors of both FRFC and ILT, with stock of ILT and Triad pledged as security for the debt. As a condition of allowing ILT to acquire Triad, Trust Company required modification of its loan agreement with Triad such that the loan would become due in full 30 June 1990.
Under the supervision of Iseman and with Taylor and Hedberg responsible for much of the work, Petree represented ILT and Triad beginning in early 1990 in connection with the proposed merger of the two companies, the surviving company to be called the Investment Life Insurance Company of America (ILA). Plaintiff's complaint alleged that a required "Form A" was filed with the Department, indicating
that the shareholder, FRFC, was raising $10-12 million in capital with which it would pay off the debt to Trust Company, and [further representing] that ILA "will have no direct or indirect liability with respect to FRFC financing" if the Department approved the merger.
In analyzing the proposed merger, the Department determined that FRFC owed $2.25 million to ILA and raised this as an issue of concern. In the words of the complaint, the law firm
responded that this debt would be repaid along with the Trust Company debt in the near future, and that "neither FRFC nor ILA anticipates that future transactions of this type (i.e., loan to FRFC) between ILA and FRFC will occur."
Plaintiff's complaint further alleged that after approval of the merger by the Department, Petree was retained by ILA and FRFC "to work on"
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