Cohen v. State ex rel. Stewart
89 A.3d 65
Del.2014Background
- Indemnity Insurance Corporation (a Delaware risk-retention group) was seized by the Delaware Insurance Commissioner after an investigation uncovered substantial evidence that CEO Jeffrey B. Cohen committed fraud and that Indemnity might be insolvent. The Commissioner sought emergency relief under the Delaware Uniform Insurers Liquidation Act.
- The Court of Chancery entered an initial Seizure Order (May 30, 2013) and later an Amended Seizure Order (Sept. 10, 2013) imposing restrictions (including confidentiality and prohibiting interference) and scheduled a show-cause hearing.
- Cohen (founder/CEO) resigned from Indemnity’s board but repeatedly interfered with the Commissioner’s control (accessing servers, contacting employees, filing outside lawsuits, withholding vehicles, etc.), prompting sanctions orders and discovery into his affiliated entities (including IDG and RB Entertainment).
- Cohen did not personally attend the Sept. 24, 2013 show-cause hearing (his counsel did); he later complained he lacked a transcript of the Sept. 10 ex parte office conference and that this deprived him of due process.
- The Court issued successive sanctions (Sept. 25, Nov. 1, Jan. 2) extending restraints to IDG, ordering escrow deposits, vehicle returns, dismissal of extrajudicial suits, and awarding monetary sanctions for contempt.
- The Commissioner and Indemnity’s board (which later consented) sought and obtained a Rehabilitation Order (Nov. 7, 2013) to preserve a potential rescue transaction; RB Entertainment sought leave to brief intervention shortly before that order but was denied. Appeals followed by Cohen and RB Entertainment asserting due process violations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to provide transcript of Sept. 10 ex parte office conference deprived Cohen of due process | Cohen: not receiving the transcript prevented him from knowing the court discussed possible criminal contempt and caused him to forgo personal attendance at the Sept. 24 hearing, prejudicing his defense | Commissioner/Court: Cohen had adequate notice from Indemnity’s filings and the Amended Seizure Order; hearing was scheduled and counsel appeared; omission of transcript was regrettable but not prejudicial | Court: No due process violation — Cohen had substantive notice and a meaningful opportunity to be heard under Mathews balancing. |
| Whether extending restraints to IDG and imposing sanctions deprived Cohen of due process re: corporate separateness | Cohen: Sanctions/extension to IDG deprived him/property interests without adequate opportunity to present evidence of separateness | Commissioner/Court: Cohen injected corporate-separateness issue into proceedings; hearing was held and Cohen declined to present live testimony/evidence; discovery was ordered to resolve separateness | Court: No due process violation — Cohen had chances to present evidence, failed to do so, and state interest in preventing circumvention outweighed his vague property claims. |
| Whether denying RB Entertainment leave to brief intervention before Rehabilitation Order violated due process | RB Entertainment: needed to brief intervention to protect alleged shareholder interests (control, voting rights, etc.) | Commissioner/Court: RB’s letter was vague, untimely, and offered no evidence (e.g., of solvency or financial backstop); board consented to rehabilitation; public-policy urgency favored prompt entry | Court: No due process violation — RB had prior opportunities, rehabilitation order preserved later objection rights, and the state’s strong interest in prompt action outweighed RB’s unspecified interests. |
| Whether denial of rehearing or relief from sanctions was erroneous | Cohen: Motion for rehearing/relief alleged new harm and sought modification to prevent irreparable harm to affiliated entities | Commissioner/Court: Allegations lacked specificity, evidence was available earlier and could have been presented at hearing; leave to renew with specifics was offered | Court: Denial not an abuse of discretion — no adequate new evidence, and Cohen had been given leave to renew with specifics but did not do so. |
Key Cases Cited
- Mathews v. Eldridge, 424 U.S. 319 (U.S. 1976) (sets the three-factor due process balancing test used to evaluate procedural adequacy)
- Sheehan v. Oblates of St. Francis de Sales, 15 A.3d 1247 (Del. 2011) (Delaware treats state due process as substantially coextensive with federal due process)
- Remco Ins. Co. v. State Ins. Dept., 519 A.2d 633 (Del. 1986) (recognizes broad regulatory authority of the Insurance Commissioner and the public-interest purpose of insurer rehabilitation/liquidation statutes)