Financial Indem. Co. v. Superior Court In and For Los Angeles County

• Decision Date: 28 October 1955
• Citation: 289 P.2d 233,45 Cal.2d 395
• Parties: FINANCIAL INDEMNITY COMPANY, a California corporation, and G. Kenneth Vaughn, Petitioners, v. The SUPERIOR COURT of The State of California, IN AND FOR the COUNTY OF LOS ANGELES, Respondent, F. Britton McConnell, Real Party in Interest. L. A. 23641.
• Court: California Supreme Court

Page 233

289 P.2d 233

45 Cal.2d 395

FINANCIAL INDEMNITY COMPANY, a California corporation, and G. Kenneth Vaughn, Petitioners, v. The SUPERIOR COURT of The State of California, IN AND FOR the COUNTY OF LOS ANGELES, Respondent F. Britton McConnell, Real Party in Interest.

L. A. 23641.

Supreme Court of California, In Bank.

Oct. 28, 1955.

Hearing Denied Nov. 23, 1955.

John S. Bolton, Wright, Wright, Green & Wright, Loyd Wright and Dudley K. Wright, Los Angeles, for petitioners.

Harold W. Kennedy, County Counsel, and William E. Lamoreaux, Deputy County Counsel, Los Angeles, for respondent.

Edmund G. Brown, Atty. Gen., Everett W. Mattoon, Asst. Atty. Gen., and Lee B. Stanton, Deputy Atty. Gen., for real party in interest.

EDMONDS, Justice.

G. Kenneth Vaughn is the owner of all of the outstanding capital stock of Financial Indemnity Company, a California corporation licensed to do business as an insurer in this state. The company and Vaughn commenced an action in the superior court seeking declaratory relief and an injunction to prevent the Insurance Commissioner from taking over the assets of the corporation. As ground for justifying judicial interference with the purpose of the Insurance Commissioner, it is alleged that the condition of the company does not come within the statutory conditions allowing him to take charge of its affairs.

On the day after that action was commenced, the commissioner presented in open court an application for conservatorship pursuant to the provisions of section 1011 of the Insurance Code. ¹ Vaughn and the company requested the court to issue an order to show cause and a temporary restraining order to enjoin the commissioner from filing his application. The court refused to do so, upon the ground that 'it does not have any jurisdiction in such matters until the commissioner files a petition under section 1011 or summarily seizes the company under section 1013 ² * * *. If the court issued an injunction herein it would * * * (usurp) the discretion exclusively vested in the commissioner to determine and find, in the first instance, whether or not conditions justifying seizure existed.'

Vaughn and the company then filed in the District Court of Appeal the present proceeding in mandamus. That court ordered the superior court to show cause why a writ of mandate should not issue requiring the court to proceed to a hearing and determination of the action for declaratory relief and injunction. It also provided that 'pending the hearing of such order to show cause, you are directed to take no action calculated to affect the pendency of said cause except to proceed with the trial thereof.'

The Insurance Commissioner, as the real party in interest, noticed a motion to vacate the order to show cause or for modification of it by deleting the portion which prohibited him from filing an application for conservatorship pending the hearing. He also filed a return by way of demurrer, alleging that the petition for mandamus does not state a cause of action because the court has no jurisdiction over the respondent superior court, or the subject matter of the petition. By answer, the commissioner denies specifically and generally each and every allegation except those pertaining to the corporate status of the company, Vaughn's stock interest, the pendency of the action in the superior court and its refusal to act in the matter. As an affirmative defense, he attacks the petition upon the same grounds presented by the demurrer. The superior court demurred to the petition upon the grounds that it does not state facts sufficient to entitle the petitioners to the remedy sought.

Vaghn and the company contend that the commissioner is attempting to apply sections 1011 and 1013 of the Insurance Code in an unconstitutional manner, in that he threatens to take over the company for reasons not specified as grounds by statute. Such action, the argument continues, would deprive the petitioners of their property rights without due process of law. The position of the commissioner and the respondent court is that the writ should be denied because (1) the superior court has passed on the matter and its order is appealable; (2) the pendency of an action for declaratory relief and an injunction does not enlarge the jurisdiction of the court nor bar the commissioner from acting pursuant to section 1011 of the Insurance Code; (3) when an application is filed by the commissioner pursuant to statute, it is the mandatory duty of the respondent court to issue a vesting order; and (4) the courts have no jurisdiction to enjoin State officers from the execution of constitutional statutes for the public benefit.

Section 1086 of the Code of Civil Procedure provides that the writ of mandate 'must be issued in all cases where there is not a plain, speedy, and adequate remedy, in the ordinary course of law'. 'An appeal is the usual course open to a litigant who believes that the trial court has committed error.' Phelan v. Superior Court, 35 Cal.2d 363, 366, 217 P.2d 951, 953. However, where the court disposes of a matter before it upon the ground that it has no jurisdiction, and thereby precludes a decision on the merits, mandamus has been issued to compel the court to decide the issues upon the merits. See: Cahill v. Superior Court, 145 Cal. 42, 78 P. 467; Times Mirror Co. v. Superior Court, 3 Cal.2d 309, 44 P.2d 547; Levy v. Superior Court, 15 Cal.2d 692, 104 P.2d 770, 129 A.L.R. 956. A dismissal of a proceeding or a denial of relief on the sole ground of lack of jurisdiction is not a decision on the merits. See: Hogeberg v. Industrial Acc. Comm., 201 Cal. 169, 182-183, 256 P. 413; Helvey v. Castles, 73 Cal.App.2d 667, 672, 167 P.2d 492. And in Katenkamp v. Superior Court, 16 Cal.2d 696, at page 698, 108 P.2d 1, at page 2, the court said, 'If a court is mistaken in its assumption that it does not possess the requisite jurisdiction, mandamus will issue to compel it to assume jurisdiction.'

The trial court's refusal to issue the requested order to show cause and temporary restraining order was based squarely upon the ground of lack of jurisdiction. The decisive question, therefore, in the present proceeding is whether upon any theory reasonably to be drawn from the facts stated in the complaint of Vaughn and the company, the commissioner may be enjoined from filing an application for conservatorship.

The purpose of Vaughn and the company is to have the issue of whether grounds for conservatorship exist determined before the commissioner is allowed to take over the company. They assert that if the conditions provided by statute as grounds for taking over the business of an insurer do not exist, an order allowing the commissioner to do so would amount to an application of the provisions of the Insurance Code against them in an unconstitutional manner. This argument assumes that any error in judgment by the commissioner would be a violation of constitutional rights. But as was said in Rhode Island Insurance Co. v. Downey, 95 Cal.App.2d 220, 230-231, 212 P.2d 965, 973, 'It is not a requirement of the statute * * *, that such matters not be disputable. The Legislature undoubtedly assumed that in most cases the company involved would dispute the commissioner's contentions, and accordingly provided, in section 1012 ³ for a full hearing before the trial court, at which the company could show that the conditions claimed by the commissioner did not exist. There is no implied restriction in the statute that the commissioner act only where the existence of the dangerous condition is beyond dispute.'

In the Rhode Island case the commissioner obtained an order appointing him conservator. The company sought a writ of mandate directing the superior court to vacate the order, contending, among other points, that the facts did not justify the commissioner's action. The court refused to issue the writ, saying, 'The statute, as construed by the California courts, requires only that the commissioner file a verified application stating that he has found one, or more, of the statutory grounds to exist. 'In making his application under section 1011 of the Insurance Code, the commissioner does not seek a judicial appointment and a judicial ruling that the company is in fact delinquent. By his application the commissioner merely represents that he has found certain conditions to exist and has made his official administrative determination to proceed as authorized by the statute. In obtaining exparte order, the commissioner is not required to show to the court that the company was in fact in a hazardous condition, but only that he, as a state officer, invested by legislative authority with the power, has so 'determined' and 'found'. * * * Caminetti v. Imperial Mut. L. Ins. Co., 59 Cal.App.2d 476, 487, 139 P.2d 681, 687; emphasis added.' 95 Cal.App.2d at pages 230, 231, 212 P.2d at page 973.

The court not only concluded that the issues must be heard in a proceeding brought pursuant to section 1012 but also held that an order made in accordance with its provisions is not a deprivation of due process. 'Although the requirements of due process often involve a prior full hearing, it has long been recognized that where public necessity requires, there can be action followed by a hearing. * * *' 95 Cal.App.2d at page 235, 212 P.2d at page 976. Also see: Carpenter v. Pacific Mutual Ins. Co., 10 Cal.2d 307, 324, 74 P.2d 761; State Savings & Commercial Bank v. Anderson, 165 Cal. 437, 132 P. 755, L.R.A.1915E, 675; North American Building & Loan Ass'n v. Richardson, 6 Cal.2d 90, 56 P.2d 1221. 'It must be remembered that insurance companies, like banks and building and loan companies, are charged with a public interest, and hence, the price of doing business is the fact that whenever a condition is the which the insurance commissioner feels is hazardous, he may take over the company and the question of whether he was justified in doing so is...