Hentschel v. Fidelity & Deposit Co. of Maryland

• Decision Date: 03 February 1937
• Docket Number: No. 10543.,10543.
• Citation: 87 F.2d 833
• Parties: HENTSCHEL v. FIDELITY & DEPOSIT CO. OF MARYLAND.
• Court: U.S. Court of Appeals — Eighth Circuit

87 F.2d 833 (1937)

HENTSCHEL v. FIDELITY & DEPOSIT CO. OF MARYLAND.^*

No. 10543.

Circuit Court of Appeals, Eighth Circuit.

February 3, 1937.

COPYRIGHT MATERIAL OMITTED

Erwin F. Vetter and George T. Priest, both of St. Louis, Mo., for appellant.

Herbert E. Barnard, of St. Louis, Mo. (Leahy, Walther, Hecker & Ely and John S. Leahy, all of St. Louis, Mo., on the brief), for appellee.

Before GARDNER, WOODROUGH, and THOMAS, Circuit Judges.

GARDNER, Circuit Judge.

This cause is now before us on rehearing. The sole question involved is the right of appellant to maintain the action. Appellant was plaintiff below, and we shall refer to the parties as they were there designated.

Plaintiff's amended petition alleges that, with the approval of the Insurance Department of the State of Missouri, the stockholders and members of the board of directors of the Western States Life Assurance Company agreed voluntarily to dissolve and to cease doing business as an insurance corporation, and that all of its insurance business was thereupon reinsured by and with the consent and approval of all the stockholders and officers of the Insurance Company and the Superintendent of Insurance and the Insurance Department of the State of Missouri; that on or about December 1, 1931, the Insurance Company voluntarily filed its petition for dissolution in the circuit court of the city of St. Louis, Mo., petitioning that court to appoint Oscar H. Hentschel as trustee to liquidate the corporation. The following allegations appear in the amended petition:

"Plaintiff further states that said dissolution proceeding was thereafter set down for hearing by the Circuit Court of the City of St. Louis, Missouri, and that all of the stockholders of said corporation, and the officers and directors of said corporation were personally served with summons, and by publication, as required by the Statutes of the State of Missouri in such cases made and provided, and that all persons interested in said corporation were duly notified of said hearing in the manner as provided by the Statutes of the State of Missouri.

"Plaintiff further states that the stockholders of said corporation and the directors and all parties interested in said corporation appeared, and after a full and complete hearing, the officers and directors refusing to act as trustees, in the liquidation of said corporation, the Circuit Court of the City of St. Louis, Missouri thereupon appointed Oscar H. Hentschel the liquidating trustee and statutory trustee of the affairs of said corporation and directed the said Oscar H. Hentschel to take charge of the assets of said corporation and administer them as provided by the Statutes of the State of Missouri.

"Plaintiff further states that when the said dissolution proceeding was set down for hearing, the superintendent of the Insurance Department of the State of Missouri was notified of said hearing and that said superintendent of the Insurance, pursuant to said notice, did appear in said proceeding and consented to the appointment of the said Oscar H. Hentschel and liquidating trustee and statutory trustee.

"Plaintiff further states that this suit is instituted by order and direction of the Circuit Court of the City of St. Louis, Missouri, which appointed plaintiff liquidating trustee and statutory trustee."

The cause of action alleged is based on the alleged breach of a fidelity bond executed by an employee of the Insurance Company, on which defendant was surety. A special demurrer to the original petition was filed, challenging the right of plaintiff to maintain the action, on the ground that he did not have legal capacity to sue. This was amplified in the demurrer as follows: "The Western States Life Assurance Company was an insurance corporation organized under the laws of the State of Missouri, and is now in the process of liquidation, that is, the winding up and dissolution of said insurance corporation; and it further appears upon the face of plaintiff's said petition that plaintiff, Oscar H. Hentschel, was on the first day of December, 1931, appointed by the Circuit Court of the City of St. Louis, Liquidating Trustee for the said insurance corporation, the Western States Life Assurance Corporation; that said Oscar H. Hentschel qualified and accepted said appointment, and was, at the commencement of this suit and action, engaged in the liquidation and dissolution of the said Insurance Corporation"; and that he was not at any time Superintendent of the Insurance Department of the State of Missouri. Another ground of the demurrer was that the Superintendent of Insurance was not made a party, and, further, that the petition failed to state a cause of action.

The court sustained the demurrer, and an amended petition was filed, and defendant then moved to dismiss the amended petition on the ground that it attempted to present precisely the same point ruled upon in connection with the original petition. The court sustained this motion and entered judgment dismissing the action, from which judgment this appeal is prosecuted.

The perplexities of this case have been somewhat clarified by the additional briefs filed and the oral arguments presented on rehearing. We have already observed that the only question involved is the right of plaintiff to maintain the action. That question in turn depends upon the validity of the judgment of the circuit court of the city of St. Louis appointing Oscar H. Hentschel liquidating trustee. The lower court held that judgment void. To warrant it in so doing, it was necessary that it appear from the record that the court could not have had jurisdiction. Evers v. Watson, 156 U.S. 527, 15 S.Ct. 430, 39 L.Ed. 520.

The demurrer to the original petition, in addition to the admissions implied by law, expressly admits that the face of the petition discloses that the Western States Life Assurance Company was in process of liquidation, "that is, the winding up and dissolution of said insurance corporation." The fact appears in both the original and the amended petitions. The contention of defendant is not that dissolution was not in process, but that, if the corporation be regarded as an insurance corporation, the cause of action here pleaded was vested in the Superintendent of the Insurance Department, while, if it were an ordinary corporation, the circuit court of St. Louis could appoint as liquidating trustees only the president and directors or managers of the affairs of the corporation, as required by section 4561, Revised Statutes Missouri 1929 (Mo.St. Ann. § 4561, p. 2007).

Accepting as true the allegations of the original and amended petitions, we are of the view that the regularity and propriety of the proceeding taken toward the liquidation and dissolution of the corporation are not open to question on this appeal. The question is whether the court had the power or jurisdiction to appoint a trustee, whether it had power to act, not whether it acted correctly.

The dissolution of a corporation may be either a de facto dissolution or a de jure dissolution. Hunn v. United States (C.C.A.8) 60 F.(2d) 430; Youree v. Home Town Mutual Ins. Co., 180 Mo. 153, 79 S. W. 175; Perry v. Turner, 55 Mo. 418; State Savings Ass'n v. Kellogg, 52 Mo. 583. A de facto dissolution, as the name implies, means that a dissolution has in circumstances and in fact taken place, as where the corporation by reason of insolvency, or other reason, suspends all its obligations and goes into liquidation without having technically availed itself of statutory procedure provided for that purpose. Youree v. Home Town Mutual Ins. Co., supra. Here it appears from plaintiff's petition that all the insurance business of the Western States Life Assurance Company had been reinsured in another corporation. It is clear from the allegations that what was meant by the term "reinsurance" was that with the consent of the insured another insurance company was substituted for the Western States Life Assurance Company so that the policyholders looked to the substituted insurer alone, and the Western States Life Assurance Company was released from all liability. People v. American Cent. Insurance Co., 179 Mich. 371, 146 N.W. 235. We must, in view of all the allegations of the pleadings, and our duty to indulge every presumption in favor of the judgment entered in the state court, assume that the term "reinsurance" is so used. Evers v. Watson, supra; Sullinger v. West (Mo.Sup.) 211 S.W. 65. In this situation, the primary duty of the Superintendent of Insurance — the protection of policyholders, the supervision of assets, and the administration of the affairs of an insurance corporation so that policyholders would suffer no loss, or that loss be minimized — had been performed, and hence may be eliminated from our consideration of the action by the state court now challenged. The question of the proper administration of the remaining assets of this insurance company at the time of the state court action was of concern only to the ordinary creditors (excluding policyholders) and stockholders.

On petition for rehearing, plaintiff, for the first time, called to our attention section 5731, Revised Statutes Missouri 1929 (Mo.St.Ann. § 5731, p. 4371). This provides a procedure for reinsurance initiated by the filing of a petition with the Superintendent of Insurance, followed by notice to policyholders, a hearing by a commission consisting of the Superintendent of the Insurance Department of Missouri and a like officer of two other states, which may approve and authorize the proposed reinsurance plan, or modify it, and may then "make such order with reference to the distribution and disposition of the surplus assets of any such company thereafter remaining as shall be just and equitable." Whether under the meager allegations of the petitions, it should be presumed that this procedure had been followed, need not, we think, be determined. It must be accepted as a fact...