Continental Bank & Trust Company v. Brandon

• Decision Date: 11 January 1962
• Docket Number: No. 18486.,18486.
• Parties: CONTINENTAL BANK & TRUST COMPANY, as Receiver for Inland Empire Insurance Company, Appellant, v. John BRANDON, as Treasurer of the State of Alabama, (Laurie Hunter Brandon, as Executrix of the Will of John Brandon, deceased, substituted as appellee in place of John Brandon, Deceased), Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

297 F.2d 928 (1962)

CONTINENTAL BANK & TRUST COMPANY, as Receiver for Inland Empire Insurance Company, Appellant, v. John BRANDON, as Treasurer of the State of Alabama, (Laurie Hunter Brandon, as Executrix of the Will of John Brandon, deceased, substituted as appellee in place of John Brandon, Deceased), Appellee.

No. 18486.

United States Court of Appeals Fifth Circuit.

January 11, 1962.

Harold Williams, Birmingham, Ala., Arthur Nielsen, Salt Lake City, Utah, Martin, Vogtle, Balch & Bingham, Birmingham, Ala., for appellant.

James E. Clark, Leigh M. Clark, L. Murray Alley, Birmingham, Ala., for appellee, Cabaniss & Johnston, London, Yancey, Clark & Allen, Birmingham, Ala., of counsel.

Before CAMERON and WISDOM, Circuit Judges, and THOMAS, District Judge.

DANIEL HOLCOMBE THOMAS, District Judge.

Receiver for Inland Empire Insurance Company sued to recover on the indebtedness of Royal American Insurance Company to Inland, naming John Brandon, as Treasurer of the State of Alabama, a defendant. Brandon, as State Treasurer, had held securities deposited by Royal American for the benefit of its policy holders and creditors, as required by State law. He had released those securities on the written request of the State Superintendent of Insurance, to the alleged damage of Inland. As to Brandon, the jury found for the defendant, and judgment was entered accordingly. Hence this appeal.

The suit as originally filed was against Leslie L. Gwaltney, individually and as Superintendent of Insurance for the State of Alabama; John Brandon, individually and as Treasurer of the State of Alabama; Royal American Insurance Company; and others. Through dismissals, summary judgment, directed verdicts, and the like, the case as tried to the jury was Continental, as Receiver of Inland, versus Gwaltney, individually and as Superintendent of Insurance, and Brandon, as Treasurer of the State of Alabama.

Royal American Insurance Company was incorporated under the laws of the State of Alabama in 1954. At the time of its incorporation, and in compliance with Title 28, Section 142, Code of Alabama 1940,¹ United States Treasury bonds in the amount of $100,000 had been deposited with the Treasurer of Alabama "for the better protection of its policy holders and creditors."

The business of Royal American was one of reinsurance. Through a series of insurance company formations, liquidations, mergers, receiverships, and reinsurance transactions, Royal American became indebted to Inland Empire Insurance Company, incorporated under the laws of Idaho. Under a "Quota Share Treaty of Reinsurance" executed between Inland and Royal American (the reinsurer), and various other agreements, both oral and written, Inland made certain payments to Royal American, for which Royal American fulfilled its obligations to Inland only in part.

The only business done by Royal American in the State of Alabama was the "treaty of reinsurance" with Inland. In December 1955, Royal American filed a petition for the appointment of a receiver in the Circuit Court of Madison County, Alabama. The petition was denied. At that time, Royal American was indebted to Inland in an amount well over a million dollars.

Meanwhile, on November 29, 1955, the Continental Bank & Trust Company had been appointed Receiver for Inland by the District Court of Idaho. Learning that the petition of Royal American for receivership had been filed, Continental, as receiver for Inland, through its attorney, Mr. Arthur Nielsen, attempted to make an investigation as to Royal American's financial condition. On December 11, 1955, Mr. Nielsen went to Montgomery, Alabama, had a conference with Mr. Gwaltney, Superintendent of Insurance, with regard to Inland's claim against Royal American. Gwaltney expressed concern over the financial condition of Royal American, and assured Nielsen that the United States Treasury bonds on deposit with the Treasurer of Alabama would not be released until such time as the claim of Inland against Royal American was adjudicated. Nielsen also discussed this matter with an Assistant Attorney General. (The Attorney General of Alabama is legal advisor for all of the departments of the State of Alabama.) On the following day, December 12, 1955, Nielsen went to Huntsville, Alabama, and discussed the matter with Mr. Carl Morring, Jr., Secretary of Royal American. Mr. Nielsen did not talk with Brandon and no message was ever sent to the State Treasurer's office informing that office in any way of Inland's claim against the deposited securities of Royal American.

In the spring of 1956, Morring (Secretary of Royal American) went to Gwaltney and requested that the bonds on deposit with the Treasurer of the State of Alabama be released. Gwaltney at first refused that request. During the trial, a document of questionable authenticity, purporting to be a resolution of the Board of Directors of Royal American, was introduced for the purpose of showing that Morring did make application to the Superintendent of Insurance on June 29, 1956, for the release of the bonds. Mr. Bill Armstrong, Deputy Superintendent of Insurance, testified that he saw the document and approved it as to form. (It is not shown that Morring had knowledge of the disposition or intended use of the bonds.) Thereafter, a letter dated June 29, 1956, was directed by Gwaltney to John Brandon, Treasurer of Alabama, requesting that he "deliver to the bearer" the certain listed United States Treasury bonds in the amount of $100,000, held by the Treasurer for Royal American's account. These bonds were accordingly released from Brandon's office, receipted for by the Superintendent of Insurance on the bottom of the written request.

Before issuing the request for release, Gwaltney had been indemnified against liability arising out of his part in the transaction by a bond issued by Alabama General Insurance Company. (That company, incidentally, at the time of the trial was also in receivership.) In some manner, not clearly explained, these bonds, belonging to Royal American, came into the custody of Mr. Richmond Flowers, President of Alabama General Insurance. Company. It is interesting to follow the proceeds of the sale of these bonds into and out of the "loss account" opened by Royal American in the Alabama National Bank of Montgomery on the same day that the sale price of the bonds was deposited. But it could serve no useful purpose here to recount those events. They hold no answer to the real question presented on appeal. That is, whether or not Brandon, as Treasurer of the State of Alabama, is civilly liable to Continental, as Receiver for Inland, for the cash value of the released securities.

Appellant insists that on portions of Brandon's answer alone, it was entitled to have its motion for summary judgment granted as to the issue of liability of Brandon to appellant. Appellant also contends that the trial court further erred in denying appellant's motion for a directed verdict and its motion for judgment notwithstanding the verdict, as well as in certain rulings on the admissibility of evidence as to practices prevailing in the Treasurer's Office.

The general duties of the Treasurer of the State of Alabama are found in Title 55, Section 211, Code of Alabama 1940, the pertinent portion of which section is set forth in the footnote below.² The controversy here, however, is bottomed upon the provisions of Section 73 of Title 28, Code of Alabama 1940. That section reads as follows:

"Treasurer to take and hold deposits of securities; exchange and withdrawal of same. — The treasurer of the state, in his official capacity, shall take and hold deposits made by any domestic insurance company, for the purpose of complying with the laws of any other state, to enable such company to do business in such state, and shall, also in like manner, take and hold any deposit made by a foreign insurance company under any law of the state. The company making such deposit shall be entitled to the income thereof, and may, from time to time, with the consent of the treasurer, when not forbidden by the law under which the deposit is made, change in whole or in part the securities which compose the deposit for other competent securities of equal value. Upon request of any domestic life insurance company, said treasurer may return to such company the whole or any portion of the securities of such company, when he shall be satisfied that the securities so asked to be returned are subject to no liability, and not required to be longer held by any provision of law, or purpose of the original deposit. And he may return to the trustee, or other representative authorized for that purpose, of a foreign insurance company, any deposit made by such company, when it shall appear that such company had ceased to do business in the state, and is under no obligation to policy holders or other persons in the state, or in the United States, for whose benefit such deposit was made." (Emphasis supplied.)

The complaint charged that "Brandon did wrongfully give up possession of such bonds" or "did wrongfully release such bonds." Brandon's answer sets out, among other things, the following:

* * * * * *

"7. Defendant alleges that the records of the Treasurer of the State of Alabama, show that upon June 29, 1956, said Leslie L. Gwaltney, as Superintendent of Insurance of the State of Alabama, by letter dated June 29, 1956, requested defendant, John Brandon, as Treasurer of the State of Alabama, to deliver to the bearer thereof, certain securities held by the Treasurer for the defendant, Royal American Insurance Company, a Corporation, as follows: United States Treasury Bonds, 2½% of 1967-72, dated November 15, 1945, due December 15, 1972-67, Numbers 15369 K, 15370 L, 55398 J, 337063 C, 348055 E-59 K, * * * 10 at M; and defendant, John Brandon, further alleges that the above listed securities were delivered to the defendant, Leslie L. Gwaltney, as Superintendent

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