Insurance Commissioner of the State of California v. First American Title Company of Napa, et al.

A. PROCEDURAL MATTERS

Plaintiff Insurance Commissioner of the State of California (“Petitioner”) in his capacity as Conservator of First American Title Company of Napa (“FA Napa”) moves, pursuant to Insurance Code section 1037, subdivision (d),2 for an order approving, and authorizing Petitioner

2 All subsequent statutory references are to the Insurance Code unless otherwise specified.

to consummate, (1) the Asset Purchase Agreement and (2) the interdependent Servicing Agreement, each between Petitioner and First American Title Insurance Company (“First American”) (together, the “Transaction”).

B. LEGAL STANDARD

Section 1037, subdivision (d) authorizes a conservator to sell, transfer, or otherwise dispose of estate property “at its reasonable market value” or “in cases other than...sale, or transfer on the basis of reasonable market value, upon such terms and conditions as the commissioner may deem proper.” When the market value of the estate property exceeds $20,000, the conservator must first obtain permission of the court. (§ 1037, subd. (d).)

“The trial court reviews the Commissioner’s actions under the abuse of discretion standard [citation]: was the action arbitrary, i.e. unsupported by a rational basis, or is it contrary to specific statute, a breach of the fiduciary duty of the conservator as trustee, or improperly discriminatory?” (In re Executive Life Ins. Co. (1995) 32 Cal.App.4th 344, 358.) In In re Executive Life Ins. Co., the trial court had reviewed several of the Commissioner’s actions, one of which was the Commissioner’s determination to sell an insolvent life insurer’s junk bonds under section 1037, subdivision (d). (See id., at 365.) By extension, the Court concludes that a trial court’s review of a conservator’s request for permission to dispose of estate property, under section 1037, subdivision (d), is for an abuse of discretion.

In Opposition, Respondents FA Napa and Cal Land Title Company (collectively, “Respondents”) fasten upon the standard under section 1037, subdivision (c), which they ask the Court to review de novo. Specifically, Respondents argue that the standard is whether the Transaction is deemed to be “most advantageous to the estate.” However, subdivision (c) applies to a different issue—a conservator’s power to compound, compromise, or negotiate settlements of claims; whereas, section 1037, subdivision (d) applies to the issue raised through the Petition—a conservator’s authority to sell, transfer, or otherwise dispose of or deal with, any estate property.

Moreover, the authority relied upon by Respondents confirms that, even under subdivision (c)’s “most advantageous to the estate” standard, courts review the Commissioner’s actions for an abuse of discretion standard, not de novo. (See Garamendi v. Golden Eagle Ins. Co. (2005) 128 Cal.App.4th 452, 466; Pac. Mut. Life Ins. Co. v. McConnell (1955) 44 Cal.2d 715, 729.)

For these reasons, the Court rejects Respondents’ contentions regarding the “most advantageous to the estate” standard under de novo review. Rather, the Court reviews Petitioner’s decision to dispose of FA Napa’s property “at its reasonable market value” or “in cases other than...sale, or transfer on the basis of reasonable market value, upon such terms and conditions as the commissioner may deem proper” under an abuse of discretion standard.

C. DISCUSSION

1. The Transaction

The Transaction involves an Asset Purchase Agreement (“APA”) and a Servicing Agreement, executed between Petitioner and First American, dated May 29, 2026. (Declaration of Scott Pearce (“Pearce Decl.”) ¶ 8.) Both agreements are interdependent and must close together. (Ibid.)

The APA purchases, for $500,000 (“Purchase Price”), FA Napa’s title plant (“Asset”), which is a records archive covering primarily Napa County, comprising both an electronic database and a physical component of more than 144,000 starters and associated maps. (Id., ¶¶ 5, 8-9, Exh. B.) The APA further provides that First American will dismiss, with prejudice, upon the closing of the sale a federal court action between the parties related to trademark use (“Federal Litigation”). (Id., ¶ 10, Exh. B (PDF p. 21, § 10.1).)

The Servicing Agreement provides that First American will perform FA Napa’s escrow obligations—namely, closing out FA Napa’s approximately 450 open escrow accounts which hold approximately $861,000 in trust. (Id., ¶ 11, Exh. C (PDF p. 29, ¶ C).) In exchange for First American’s performance of the escrow obligations, the Purchase Price shall be reduced by amounts actually incurred by First American, not to exceed $63,465.66. (Id., ¶ 8, Exh. B (PDF p. 17, § 2.2(b), Exh. C (PDF p. 32, § 4.1).) After a second reduction for premium trust off-set, the net proceeds of the Purchase Price come down to $200,000. (Id., ¶ 8.)

2. Section 1037, Subdivision (d)’s Applicability to the Transaction

As an initial matter, the Servicing Agreement does not immediately strike the Court as being subject to the Court’s permission under section 1037, subdivision (d), unless First American’s closing out of the escrow accounts constitutes the disposition of FA Napa’s real or personal property. If not, the Servicing Agreement does not sell, transfer, or dispose of the Asset; rather, it is merely related because it affects (reduces) the Purchase Price of the Asset. Neither party articulates section 1037, subdivision (d)’s applicability (or lack thereof) to the Servicing Agreement.

Petitioner discusses the APA and Servicing Agreement as one, seeking permission for the Transaction as a whole. Respondents do not discuss the Transaction as separate parts, nor do they raise any issue with Petitioner’s seeking permission for the APA and Servicing Agreement together. Thus, for purposes of this Application, the Court will construe both the APA and Servicing Agreement as selling, transferring, or otherwise disposing of estate property subject to section 1037, subdivision (d).

3. The Grounds Under Section 1037, Subdivision (d) Supporting Petitioner’s Authority for the Transaction

Next, it appears (although the Court is not entirely clear) that Petitioner’s contention is that the Court should grant permission for the Transaction because it both disposes of the Asset “at its reasonable market value” and disposes of the Asset (and other estate asset, if any, at issue in the Servicing Agreement) “upon such terms and conditions as the commissioner may deem

proper.” (See Mem., 5:1-23 [discussing market value test for the Asset]; Reply, 6:12-27 [same] with Mem. 5:24-6:20 [discussing factors other than market value in support of the benefits of the Servicing Agreement, appearing to rely on the “deem proper” standard]; Reply, 5:9-11 [same].)

The Court finds that the record before it supports granting permission for the Transaction under both theories set forth within section 1037, subdivision (d).

First, “Market value is a product of the relevant market.” (In re Executive Life Ins. Co., supra, 32 Cal.App.4th at 365.) Here, the Asset was marketed before and after the Conservatorship was established on December 22, 2025. (See Pearce Decl., ¶ 7.) Prior to the Conservatorship, FA Napa received, in 2025, a single conditional offer of approximately $400,000, but the offer lapsed and the sale never happened. (Ibid.) After the Conservatorship, Petitioner re-canvassed the parties who had previously expressed interested and afforded First American the opportunity to review and bid in conjunction with providing escrow services. (Id.)

Three groups expressed interest, two candidates (other than First American) performed on-site due diligence, but declined to make an offer. (Id.) First American’s offer is the only offer the estate received. (Id.) Petitioner contends that the foregoing demonstrates it diligently, vigorously, and intensely pursuant the Asset’s market value and, therefore, its decision to sell it at the Purchase Price is not arbitrary.

In Opposition, Respondents do not dispute that the Purchase Price is the reasonable market value for the Asset, nor do Respondents provide a higher offer, a competing valuation, a buyer willing to pay more, or any other evidence which would demonstrate that the Purchase Price is not the reasonable market value of the Asset. Rather, Respondents contend that Petitioners have failed to show that the Transaction represents the course “most advantageous to the estate,” which, as discussed above, is the improper standard.

Based on the foregoing, the Court finds that Petitioner did not abuse its discretion in accepting the Purchase Price as the “reasonable market value” of the Asset. (§ 1037, subd. (d).)

Second, even if the Transaction is viewed as a sale “other than ... sale, or transfer on the basis of reasonable market value,” the Court finds Petitioner did not abuse its discretion in accepting the Transaction based “upon such terms and conditions as the commissioner may deem proper.” (See § 1037, subd. (d).) “Section 1037(d) is part of a comprehensive statutory scheme which serves primarily to protect policyholders of insolvent insurers by a process of rehabilitation. Thus risk to policyholders in the process adopted is a primary consideration, and the key question here is the propriety of the ... sale in this light.” (In re Exec. Life Ins. Co., supra, 32 Cal.App.4th at 365.) In exercising its power to either rehabilitate the insolvent insurer or to liquidate it, the Commissioner is vested with broad discretion. (Id., at 356.)

Here, Petitioner argues that the Transaction is in the best interest of policyholders and creditors because it: (1) monetizes the Asset at a commercially reasonable price following a thorough market test, (2) provides a minimum of $200,000 of distributable proceeds where there otherwise is none, (3) ends the Federal Litigation, and (4) advances the orderly windup of the estate toward liquidation. (See Mem., 5:25-6:8; Pearce Decl., ¶ 13.) Petitioner further argues, albeit without evidentiary support, that it considered and weighed FA Napa’s Shareholder,

Johnny Karpuk’s, concerns in exercising its discretion to enter the Transaction. (Mem., 6:9-20.) Petitioner further points out that its duty runs to creditors, policyholders, and the public, none of which have opposed the Transaction. (Reply, 7:25-28.) Rather, the only Opposition is from FA Napa’s residual equity, which stands last in the statutory distribution priority. (Id., 7:28-8:2, citing § 1033, subd. (a)(9).)

The Court finds, based on the record before it, that Petitioner did not abuse its discretion in accepting the Transaction based “upon such terms and conditions as the commissioner may deem proper.” (§ 1037, subd. (d).)

In Opposition, Respondents, again relying on the improper “most advantageous to the estate” standard, argue that Petitioner has not met its burden because the Petition fails to: (1) address the value of a separate, material asset of FA Napa—its License—or show that the License’s value was reflected in the Transaction (see Opp., 7:15-16.); (2) account for potentially valuable litigation claims (see id., 8:15-9:11), (3) adequately address the allocation of FA Napa’s liabilities (see id., 9:12-10:4), or (4) discuss available alternatives (id., 10:5-11:3). Respondents further argue that one of the benefits of the Transaction expressed in the Petition—the administration of escrow accounts—can occur independently of the Transaction through sections 12376 and 12377. (Id., 11:4-12:6.)

In Reply, Petitioner asserts that, in addition to Respondents applying the incorrect standard, none of the foregoing issues are involved in, or relevant to, the Transaction. Thus, the Petition need not address or evaluate them. Petitioner specifically argues that Respondents demand an evaluation of: (1) the License, which is not being sold in the Transaction and is purportedly subject to a cease-and-desist order (Declaration of Jonathan Karpuk (“Karpuk Decl.”), ¶¶ 40, 52), (2) litigation claims that no one has filed (Pearce Decl., ¶ 10), and (3) goodwill of an insolvent company with no employees left to close its own open escrows (Pearce Decl., ¶ 6). (Reply, 7:12-23.)

The Court is not persuaded that the issues raised by Respondents in Opposition either preclude a finding that Petitioner did not abuse its discretion in entering the Transaction based “upon such terms and conditions as the commissioner may deem proper,” or support a contrary finding that Petitioner’s decision to enter the Transaction was “arbitrary, i.e. unsupported by a rational basis, ... contrary to specific statute, a breach of the fiduciary duty of the conservator as trustee, or improperly discriminatory” (In re Executive Life Ins. Co., supra, 32 Cal.App.4th at 358.)

For all the foregoing reasons, the Application is GRANTED.

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