Troup v. McCart

• Decision Date: 15 February 1957
• Docket Number: No. 16022.,16022.
• Citation: 238 F.2d 289
• Parties: William J. TROUP, Appellant, v. Harold F. McCART et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

238 F.2d 289 (1956)

William J. TROUP, Appellant, v. Harold F. McCART et al., Appellees.

No. 16022.

United States Court of Appeals Fifth Circuit.

November 14, 1956.

Rehearing Denied February 15, 1957.

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Thomas E. Skinner, Birmingham, Ala., A. C. Latimer, Atlanta, Ga., Horace C. Wilkinson, Birmingham, Ala., of counsel, Wilkinson & Skinner, Birmingham, Ala., Carter, Latimer & Savell, Atlanta, Ga., for appellant.

Wm. F. Buchanan, Newell Edenfield, Lamar W. Sizemore, Atlanta, Ga., for appellees.

Before TUTTLE, CAMERON and JONES, Circuit Judges.

CAMERON, Circuit Judge.

Appellant Troup (hereinafter called plaintiff) brought this action on behalf of himself and the certificate-holding members of Acme Life Insurance Society (called Society), against Acme United Life Insurance Company (called Company), Harold F. McCart and twelve other individuals constituting the officers and directors of the Company, hereinafter referred to as defendants.

The gravamen of the action was that McCart and the other individual defendants, while acting as fiduciaries in charge of the assets and business of the Society, organized the new Company, transferred the Society's assets to it, issued to themselves the majority of the Company's stock and took over its management for the personal profit of defendants and in violation of their duties as such fiduciaries.

The Society had been incorporated¹ under Georgia law in 1937, and it continued to operate until 1952 when it was converted into a Regular Old Line Legal Reserve Life Insurance Company as provided by Georgia law.² The individual defendants initiated and took the lead in said conversion, but it was approved by all of the lodges of the Society and by its Supreme Council.

Plaintiff — along with all other certificate-holders in the Society — was notified and kept advised of the proposed action and the steps taken in effecting it, but he did not vote thereon or protest thereto until after the lapse of more than three years. Under Georgia law and by act of the Company under requirement of its bylaws the assets of the Society, though transferred to the Company, have been and are maintained as a separate block on the books of the new corporation, and the stockholders of the new corporation can never receive any dividend from those assets. Under the new arrangement all financial benefits accruing to plaintiff and the certificate-holders of the Society are identical with what they were before the conversion.

Plaintiff based his Complaints on the assertion that the Georgia laws were inapplicable to the Society because passed subsequent to its incorporation, that said laws were not complied with in the process of conversion, and in the alternative that said laws were unconstitutional under the Fourteenth Amendment if applied so as to approve the acts of the defendants in effecting the conversion. Jurisdiction was invoked upon the theory that plaintiff's was a class action and that he was entitled to recover for the class the value of the assets taken over from the Society by the Company; to have the stock in the Company held by the individual defendants declared to be held in trust for the benefit of the certificate-holders in the Society; and to have a receiver appointed to take over said stock and to administer the affairs of the Company. The claim of federal jurisdiction was based upon diversity of citizenship, plaintiff being a citizen of Florida and all defendants being citizens of Georgia.

Defendants moved to dismiss on the ground that plaintiff's claim did not amount to three thousand dollars, and that he was not entitled to aggregate his claim with those of the other certificate-holding members for whom he purported to speak, because he did not adequately represent said class and because his claim and theirs were not common or joint. The Court granted the motion on both grounds and also granted defendants' motion for summary judgment. The appeal is from the orders entered on those motions.

We do not reach the merits because we think that the Court below correctly decided that it was without jurisdiction.³ The Court approached the question with becoming care and caution, and decided it only after extensive oral argument and consideration of printed briefs.

Plaintiff made the usual formal allegation that the matter in controversy exceeded, exclusive of interest and costs, the sum of three thousand dollars. This statement was denied by defendants' motion to dismiss and it is of "no avail" unless the facts sustain it. Lion Bonding & Surety Co. v. Karatz, 1922, 262 U.S. 77, 86, 43 S.Ct. 480, 67 L.Ed. 871. Plaintiff's formal statement was amplified in the Complaints by the assertion that the Society had acquired earning power, good will, agency force and going value as a society reasonably worth in excess of $200,000.00, and tangible assets of a net value in excess of $100,000.00, and a surplus of more than $120,000.00.⁴ The Complaints further alleged that the Society had in force total insurance of more than twenty-two million dollars, assets of more than one million, six hundred thousand dollars, and liabilities of one million, four hundred thousand dollars. Plaintiff brought the action on behalf of himself "and all other similarly situated certificate-holding members of the Society * * * so numerous as to make it impractical to bring all of them before the Court."

After the plaintiff had filed his Amended Complaint and the positions of the parties had been stated, the trial Court entered an order requiring the parties within a specified time to amplify and clarify their contentions.⁵ The disclaimer mentioned in the note was confirmed by plaintiff's response to this order.

The certificate of membership exhibited with plaintiff's pleadings contained the provisions normally found in contracts of life insurance. It provided for payment of premiums by plaintiff and for payment by the Society of a stipulated sum in event of plaintiff's death, together with dividends;⁶ for cash and loan values and for double indemnity in event of accidental death. The entire financial relationship between plaintiff and the Society was set forth in this certificate. And every other member held a similar but separate certificate defining the rights as between him and the Society.

In addition, the certificates referred to the constitution and by-laws of the Society, incorporating them as a part of the separate contracts between plaintiff and the other members and the Society. Those writings, likewise exhibited with plaintiff's pleadings, made elaborate provision for a fraternal benefit society having a lodge system with representative form of government. Its purposes included the teaching of patriotism and individual responsibility to its members; the raising of funds by voluntary contribution or assessment for use in ministering to the needs of the members; and the promoting of charity and fraternity among the membership.

The Court below heard together the motion to dismiss for want of jurisdiction and the motions by plaintiff and defendants for summary judgments, in connection with which the Court had before it a number of affidavits, requests for admission and answers thereto, and the depositions of all of the principal parties in interest.⁷ A trial court is granted considerable discretion in hearing jurisdictional questions and the procedure followed here was amply within its competence.⁸ The conclusion announced by it was this: "The record in this matter is voluminous but all counsel have conceded that there is no material conflict in the facts. * * * After some days of diligent study this Court has reached the conclusion that the action must be dismissed on jurisdictional grounds."

In its well-considered opinion the Court declared that, under any theory advanced by plaintiff, his own certificate of membership did not have a value of $3,000.00 and that he had no standing to maintain his action unless he was entitled to aggregate with his own claim, the claims of all other members of the Society; pointing out that, in the reorganization, the new Company set aside the assets of the Society as a reserve for the payment of benefits under then existing certificates and credited to those certificate-holders all dividends earned upon their certificates.

The Court then quoted the provisions of Rule 23(a) (1), 28 U.S.C.A.,⁹ and held that plaintiff did not fairly represent the class he assumed to speak for, and that even if he did the class action he was attempting to maintain was not a true class action but belonged rather to the hybrid or the spurious category.¹⁰

We think the facts and the law support both conclusions of the Court below. On the question of adequacy of representation the Court pointed out that, of the 9,000 members of the Society, neither the plaintiff nor any other member objected to the conversion when it was taking place, although ample written notice was admittedly given him along with all other certificate-holders. Plaintiff did not register his disapproval until more than three years after the conversion when this litigation was begun. Every lodge of the Society voted unanimously in favor of the conversion,¹¹ and nine hundred twenty-four of the members availed themselves of the opportunity given to all members, to subscribe to the capital stock of the new company.

Neither the pleadings nor the proof showed that any other member besides plaintiff was dissatisfied with the new arrangement, and plaintiff did not make any certificate-holders of either class defendants in order to test their attitudes. No certificate-holder has intervened in support of plaintiff's position and, under the authorities cited above, the Court below was justified in holding that plaintiff did not bring himself within the requirements of Rule 23 concerning adequate representation of the class of which he constituted himself the spokesman. His "allegation that he sued on behalf...