112 F. 453 (6th Cir. 1901), 955, Phelps v. Mutual Reserve Fund Life Ass'n

Docket Nº:955.
Citation:112 F. 453
Party Name:PHELPS et al. v. MUTUAL RESERVE FUND LIFE ASS'N.
Case Date:December 03, 1901
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 453

112 F. 453 (6th Cir. 1901)

PHELPS et al.

v.

MUTUAL RESERVE FUND LIFE ASS'N.

No. 955.

United States Court of Appeals, Sixth Circuit.

December 3, 1901

Zack, Phelps and Benjamin F. Washer, for appellants.

George Burnham, Jr., and Sewell T. Tyng (Pirtle & Trabue,

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This is an appeal from a decree continuing an interlocutory injunction. The case is briefly this: The appellee, the Mutual Reserve Fund Life Association, is a corporation organized under the laws of the state of New York. For many years it solicited insurance in the state of Kentucky, having complied with the law of that state in respect of the conditions upon which foreign insurance companies are permitted to do business in the state. As preliminary to being licensed, its board of directors passed a resolution consenting that service of process in suits brought against it in Kentucky might be made upon the insurance commissioner of the state, and that such service should be a valid service upon the association. October 10, 1899, the Kentucky insurance commissioner revoked all authority theretofore granted by his department, and all licenses granted to its agents to do business within the state. In this situation of things, suit was brought against the association, in the Jefferson circuit court, one of the courts of the state of Kentucky having both common law and equity jurisdiction, by James S. Phelps, one of the appellants. Phelps had for many years been a member of the association, and held a policy of life insurance therein. He claimed that the company had, without his consent, violated the terms and conditions of its contract with him, and, in effect, had annulled and canceled its agreement with him, by the imposition of new and illegal arbitrary conditions. He therefore sued to recover back the dues, premiums, and assessments paid by him theretofore, aggregating $1,994.20. Process issued against the said association, which was returned served upon the insurance commissioner of the state of Kentucky and upon one Ben Frese, who was described in the return as 'the managing agent and chief officer and agent of the Mutual Reserve Fund Life Association found in this county. ' The association appeared specially, and solely for the purpose of challenging the sufficiency of this service of the writ of summons, and moved to quash the return. Upon this motion evidence was heard, involving the character of the agency of B. Frese, as well as the sufficiency of the service upon the state insurance commissioner after revocation of the company's license to do business within the state. Upon the evidence and exhibits, the circuit judge made a finding of fact and law which was, in substance: First, that the resolution of the board of directors of the association, consenting that service upon the Kentucky insurance commissioner of process issuing in any suit pending or which might be brought in the courts of the state should be a valid service, had never been revoked or canceled, and that the service of process in this suit upon the said commissioner was a good and valid service; second, that Ben Frese, at the time of service upon him, 'was the local treasurer of the defendant association in Jefferson county, and as such was an agent of the company upon whom summons might be served. ' The motion to quash was accordingly overruled. The defendant declined to plead further, and judgment by default was rendered for the sum of $1,994, with interest on the various items from date of each payment, respectively. This judgment for the principal sum and interest aggregated $2,360. Execution issued which was returned 'No property found.' Thereupon the plaintiff in the said judgment by leave of court filed in the said Jefferson circuit court, and in the same case,

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a pleading styled an 'Amended and Supplemental Petition.' In this he set out the fact of his said judgment, and that execution had been duly returned 'No property found,' and that his said judgment was wholly unpaid. It was then in substance averred: That the said association, at the time its license to do business in the state had been withdrawn, had a great number of policy holders in the state, which policies were a large source of income to the association, and that it had continued to do business within the state by collecting dues, premiums, and assessments upon its said existing contracts, and that at stated times dues, premiums, and assessments became due from said Kentucky policy holders, which the company regularly demanded and received as a condition of keeping in force its said contracts. It was also averred that prior to December, 1899, such policy holders had paid all dues, premiums, and assessments to local collectors and treasurers, who were appointed at different places within the state for the purpose of receiving such dues, premiums, and assessments accruing to the association, but that since December, 1899, the authority of all such collectors and treasurers had been revoked, and the company's debtors and policy holders notified and required to forward all such dues, premiums, and assessments directly to the home office of the association, in New York. This method of doing business, the petition averred, was adopted for the purpose of evading the service of process within the state, while so still carrying on business in the state, and for the fraudulent purpose of removing its assets out of the state to evade the process of the law and the payment of local creditors, and particularly with the intent of preventing this plaintiff in the collection and realization of the amount due upon his said judgment. The prayer of the petition was in these words: 'Wherefore, the plaintiff prays for a decree in aid of and in the enforcement of the judgment heretofore rendered in this court, and to this end plaintiff prays that a general attachment issue against the property of the defendant, the Mutual Reserve Fund Life Association; that the defendant and all persons now or heretofore connected with said defendant be required to appear before the commissioner of this court, and disclose any money, choses in action, equitable or legal interest, and all other property to which the defendant is entitled to or to which it has an interest; or, if it seems best to the court, the plaintiff prays that a receiver be appointed to take charge of the business, assets, and all other property of every kind and description which the defendant has in Kentucky or may hereafter obtain in this state; that all revenues and incomes accruing to the defendant from policy holders and other debtors be ordered paid to said receiver; and that so much as may be necessary or any money or property belonging to the defendant as may be any order or process come within the jurisdiction of this court be employed to the settlement and satisfaction of the judgment which the plaintiff holds against the defendant, as set forth and mentioned herein. Plaintiff prays for his costs in this action, and for all other relief, general, equitable, and special. ' The final judgment in favor of said James S. Phelps was rendered May 19, 1900. This amended or supplemental petition was filed August 4, 1900, and on the same day the said Jefferson circuit court made an order, entitled as in the original suit, directing that the petition be filed and the action transferred to the equity docket. By the same order the court appointed the appellant, the Fidelity Trust & Safety Vault Company, receiver for the Mutual Reserve Fund Life Association in Kentucky, and directed it to 'collect and receive all moneys, debts, things in action, and credits now owing to or hereafter to accrue to the said Mutual Reserve Fund Life Association in Kentucky'; that the said receivers 'shall take into possession all the revenue and income which has accrued or may accrue to the defendant from its business in this state and policy holders.' It was further ordered that 'all persons insured in said association and all other debtors of said association in Kentucky are now specifically ordered and directed to pay to the receiver herein appointed all dues, premiums, assessments, and whatever else of value may now be or hereafter become owing or due to the said defendant association.' The receiver was authorized to employ counsel and to bring and defend all suits necessary to recover the assets of the association, and all persons were enjoined

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from interfering with him in the custody, management, and control of the assets and rights 'hereby impounded and placed in the hands of said receiver,' who was directed to hold the same for the satisfaction of the judgment of said petitioner, Phelps, and of the costs and expenses of the receivership. It was directed that 'when such judgment shall be paid, and such costs and expenses liquidated, the receivership provided for herein shall terminate.' The receiver was further directed to make report from time to time of all his acts and proceedings. The receiver qualified on the same day by giving the bond required by the court. On August 22d, following, the said Mutual Reserve Fund Life Association, appearing for the sole purpose of filing a petition for the removal of said action, did file a petition praying the removal of said proceeding, which was directed 'as an equitable action apparently based or sought to be maintained upon the statutory authority of section 439 of the Code of Practice in Civil Cases, based upon a return' of nulla bona, etc. It was averred that the amount in controversy exceeded $2,000, being $2,360, with interest from May 18, 1900; that the petitioner was a corporation of the state of New York; and that the plaintiff in said proceeding was a citizen and inhabitant of the state of Kentucky. Bond, conditioned as required by law was tendered. The application to remove was denied. Thereupon the said Mutual Reserve Fund Life...

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