cgm Doc 316 Filed 04/18/12 Entered 04/18/12 16:24:24 Main Document Pg 1 of 9. UNiTED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

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1 Pg 1 of 9 UNiTED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: IN PROCEEDINGS MAJESTIC CAPITAL, LTD. et al. UNDER CHAPTER 11 BK No Debtors. (Jointly Administered) THE NEW YORK STATE WORKERS COMPENSATION BOARD S STATEMENT IN SUPPORT OF THE DEBTORS OMNIBUS OBJECTIONS TO CLAIMS OF EMPLOYER PARTICIPANTS IN GROUP SELF4NSURED TRUSTS AND RELATED THIRD-PARTY CLAIMS The New York State Workers Compensation Board ( WCB ). by its attorneys Rupp, Baase. Pfalzgraf. Cunningham & Coppola LLC hereby submits this statement in support of the Debtors omnibus objections to claims of Employer Participants ( Employer Participants ) in group self-insured trusts ( GSITs ) and related third-party claims ( Omnibus Objections ). The WCB is a creditor of Debtors in its capacity as the governmental entity charged with the administration of the New York State Workers Compensation Law and attendant regulations, and in its capacity as successor in interest to the following GSITs: The Healthcare Industry Trust of New York. The Wholesale and Retail Workers Compensation Trust of New York. Transportation Industry Workers Compensation Trust, Trade Industry Workers Compensation Trust for Manufacturers, The Real Estate Management Trust of New York, The Public Entity Trust of New York, The New York State Cemeteries Trust, and Elite Contractors Trust of New York (collectively referred to as the Trusts ).

2 Pg 2 of 9 I. The WCB supports the Dehtors proposed reliefi along with the factual and legal grounds upon which the Debtors seek that relief. The claims of the Employer Participants are derivative of the WCB s claims and the Employer Participants have no standing to maintain those claims. The WCB alone has standing to assert claims on behalf of the Trusts. THE STATE COURT LITIGATION 2. On December the WCB filed a summons and verified complaint against the Debtors, as well as others, in New York State Supreme Court, Albany County, in a case entitled The New York State Workers Compensation Board ci a! v. Compensation Risk Managers, LLC ci al.. Index No (N.Y.Sup. Ct. 2009). The WCB subsequently filed an amended summons and amended verified complaint on March 26, The WCB asserted claims for breach of fiduciary duty, breach of contract, breach of duty of good faith and fair dealing, fraud, fraud in the inducement, unj ust enrichment. deceptive business practices, false advertising, and conversion. The WCB sued in its capacity as a governmental entity and as the successor in interest to the Trusts. Each of the Debtors provided services of some kind to the Trusts.

3 Pg 3 of 9 4. In addition to the WCBs action against the Debtors, there are seven other State Supreme Court actions against the Debtors, all of which arise out of similar facts and circumstances. The plaintiffs in those actions are former Employer Participants of the Trusts. 5. By way of an order dated February 23, Justice Helen E. Freedman of New York s Litigation Coordinating Panel ordered that those lawsuits, and the WCBs lawsuit, be coordinated before the Honorable Richard M. Platkin. J.S.C. in Albany County. DISSOLUTION OF GSITS 6. The WCB is the governmental entity charged with the administration of the Workers Compensation Law (WCL ) and attendant regulations and has all of the powers and duties set forth in WCL WCL 50 permits employers to self-insure individually, or to join with other employers in related industries and form a GSIT to jointly self-insure for workers compensation claims. See WCL 50 (3-a). l At the time off the issuance of the order of the Litigation Coordination Panel only five of the seven suits had been commenced. However, the order states that subsequently filed litigation shall be similarly coordinated, and therefore, the WCB believes that the Order applies to all seven actions. -3-

4 Pg 4 of 9 8. Between 1999 and WCB authorized each of the Trusts to operate as a GSIT as defined by WCL 50(3-a). 9. The WCB, among other things, receives and reviews the annual, independently audited financial statements and actuarial reports submitted by every GSIT. These documents detail the GSIT s liabilities and assets. O. If a GSIT s annual audited financial statements and actuarial reports indicate that the GSIT has greater liabilities than assets, known as underfunding, the GSIT is subject to the remediation procedures set forth in 12 NYCRR A (isit will be terminated by order of the WCB if its financial analysis demonstrates a continued underfunded status that is so severe that the GSIT cannot be restored to a financially stable position in a timely manner. When this occurs, the GSIT no longer provides coverage for its members. However, its members still are required to meet their workers compensation obligations that accrued prior to the GSIT s termination, and that are payable directly to the injured employees. 12. In the event that the WCB determines that a GSIT cannot properly administer its liabilities due to its inability to pay outstanding lawful obligations, the -4-

5 Pg 5 of 9 WCB shall assume the administration and final distribution of the GSIT s assets and liabilities, pursuant to 12 NYCRR Pursuant to 12 NYCRR 317.9(c), the WCB revoked each of the Trusts statuses as GSITs because the WCB determined that each of the Trusts was severely underfunded, and that they could not be restored to financial stability in a timely and appropriate manner. The WCB further determined that each of the Trusts could not properly administer its liabilities and was unable to pay outstanding lawful obligations. 14. Accordingly, pursuant to 12 NYCRR , the WCB has assumed the administration and final distribution of each of the Trusts assets and liabilities. Thus. the WCB is the successor in interest to the Trusts. 15. As successor in interest, the WCB has met, and continues to meet, the workers compensation obligations of the Trusts; doing so first from the Trusts remaining assets and security deposit, and then from its own administrative fund. THE FORENSIC AUDITS OF THE TRUSTS 16. Once the WCB has assumed the administration of an insolvent GSIT. as a general practice, the WCB directs that a forensic audit of the dissolved GSIT

6 GSIT s liability both by year and member cgm Doc 316 Filed 04/18/12 Entered 04/18/12 16:24:24 Main Document Pg 6 of 9 the Trusts total liabilities, as well as to each members pro rata share of those liabilities, 20 10, the Board was provided the forensic program audits for the Trusts. 20. l)uring the period, December , through December 31. Participant s pro rata share thereof. reconstruct the Trusts financial positions; and (2) determine each participating Employer forensic accountings of the Trusts. Co.. LLP. CPAs (BST) and Lumsden and McCormick, LLC (1umsden) to perform Trusts were no exception. make the calculations necessary to allocate the GS1Ts liabihtv upon its members. The speaking. an insolvent (isils records are poor. and the WCB cannot rely on them to 17. The WCB commissions the forensic audit because, generally 18. Accordingly. the WCB commissioned Bollam, Sheedv Torani & 19. The WCB engaged BST and Lumsden to. among other things. 21. The WCB reviewed BST s and Lurnsden s findings as to each of he performed to verify the GSIT s liabilities as previously reported and to reconstruct the

7 Pg 7 of 9 and determined that the information. methodologies, and assumptions that they used to reconstruct and assess the members deticits were done within a reasonable degree of professional certainty. 22. Accordingly, the WCB levied assessments on all of the members of Trusts consistent with the forensic program audits. 23. In connection therewith, the WCB entered into interim repayment agreements (MOUs ) with the members of the Trusts, including many of the Employer Participants, whereby the members of the Trusts would provide the WCB with the interim funding to meet the obligations of their respective insolvent Trust, defer larger payments, and avoid potential interest and collection costs. In exchange the Employer Participants would be provided with, inter alia, a share of whatever damages are recovered by WCB as a result of its action against the Debtors. A sample copy of an MOU is attached to the Debtors Omnibus Objection as Exhibit C. 24. The WCB has reviewed Exhibit A to the Debtors Omnibus Objection and it appears that the amounts of the claims filed by the Employer Participants are identical to the amount of the pro rata assessments levied by the WCB against the Employer Participants. -7-

8 Pg 8 of Therefore, it is the WCWs position that the Employer Participants claims are duplicative to the WCB s claims. Furthermore, to the extent that the Employer Participants have executed an MOU with the WCB, and thus will share pro rata in the WCB s recovery in this proceeding, the Employer Participants should not be allowed to recover from the Debtor s twice. 26. It is also the position of the WCB that the claims of the Employer Participants are derivative to those of the WCB and that the Employer Participants do not have any direct claims against the Debtors. The WCB alone has standing to assert these claims. WCL 50(5). 50(3-a); New York State Workers Compensation Board v. Classic Insurance Agency. 78 A.D.3d 561, 910, N.Y.S.2d 651 (1st Dep t 2010); RBG Management Coip. v. Compensation Risk Managers, LLC, Index No (N.Y. Sup. Ct. 2008) (a copy of which is attached as Exhibit D to the Debtors Omnibus Objections); FS Kids, LLC v. Compensation Risk Managers, LLC, index No (N.Y. Sup. Ct. 2008) (a copy of which is attached as Exhibit E to the Debtors Omnibus Objections). 27. The WCB has made these positions known to all the Employer Participants and their counsel. The WCB, the Debtors, and counsel to the Employer Participants in all of the State Court actions except Healthcare Industry Trust ofnew York et al v. Compensation Risk Managers, LLC ci al., ( HITNY Action ) have agreed -8-

9 Pg 9 of 9 to a stipulation whereby the Employer Participants acknowledge these positions and withdraw their claims. They also have agreed to take actions consistent therewith in the state court litigation. The stipulation presently is before the Court awaiting approval. 28. The WCB has contacted counsel for the Employer Participants in the HITNY Action and has offered to enter into an identical stipulation. 29. Upon information and belief, a majority of the HITNY Action Employer Participant have executed MOUs with the WCB. WHEREFORE, the WCB respectfully requests that the Court grant the relief that the Debtors seek in their Omnibus Objections, together with such other and further relief as this Court deems just and proper. Dated: April 18, 2012 Buffalo, New York RUPP, BAASE, PFALZGRAF, CUNNINGHAM & COPPOLA LLC Attorneys for the New York State Workers Compensation Board -9- By: /5/ Daniel E, Sarzynski Daniel E. Sarzynski, Esq., of Counsel 1600 Liberty Building Buffalo, New York (716)

10 cgm Doc Filed 04/18/12 Entered 04/18/12 16:24:24 Certificate of Service Pg 1 of 2 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In Re MAJESTIC CAPITAL, LTD., et al. Debtors. IN PROCEEDINGS UNDER CHAPTER 11 Case No.: (Jointly Administered) CERTIFICATE OF SERVICE I, Daniel E. Sarzynski, certify that I am not less than eighteen (18) years of age and that on April 18, 2012, 1 electronically filed The New york State Workers Compensation Board s Statement in Support of the Debtors Onmibus Objections to Claims of Employer Participants in Group Self-Insured Trusts and Related Third-Party Claims, dated April 18, 2012, with the Court using the CJ\ /ECF system and served the document described herein upon the parties listed below in the following manner: Mail Service: Regular, first-class United States mail, postage full pre-paid, addressed to Hon. Cecelia G. Morris United States Bankruptcy Court Southern District of New York 355 Main Street Majestic Capital, Ltd. P.O. Box 1999 Majestic USA Capital, Inc. P.O. Box 1999 Poughkeepsie. New York Compensation Risk Managers, LLC P. 0. Box 1999 Compensation Risk Managers of California, LLC P. 0. Box 1999 Eimar, LLC P.O. Box 1999

11 cgm Doc Filed 04/18/12 Entered 04/18/12 16:24:24 Certificate of Service Pg 2 of 2 Embarcadero Insurance Holdings, Inc. P. 0. Box 1999 Thomas Genova, Esq. Genova & Maim, Attorneys Hampton Business Center ll36route9 Wappingers Falls, New York James Gadsden, Esq. Carter Ledyard & Milburn LLP 2 Wall Street New York, New York Eric J. Small, Esq. Office of the United States Trustee 74 Chapel Street, Suite 200 Albany, New York Steven C. Reingoid, Esq. Jager Smith P.C. 485 Madison Avenue, 20th Floor New York, New York Linda J. Clark, Esq. Hiscock & Barclay, LLP 80 State Street Albany, New York Jodie Zolnowski Phillips Lytle LLP 3400 HSBC Center Buffalo, New York Is! Daniel E. Sarzynski Daniel E. Sarzynski

mg Doc 2487 Filed 12/19/12 Entered 12/19/12 23:41:45 Main Document Pg 1 of 5

12-12020-mg Doc 2487 Filed 12/19/12 Entered 12/19/12 234145 Main Document Pg 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK X In re RESIDENTIAL CAPITAL, LLC, et al.,