Continental Bank & Trust Company v. Gold

• Decision Date: 28 March 1956
• Docket Number: Civ. No. 914.
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: CONTINENTAL BANK & TRUST COMPANY, a Utah corporation, Receiver of Inland Empire Insurance Company, Petitioner, v. Charles F. GOLD, Commissioner of Insurance, State of North Carolina, and Edwin Gill, State Treasurer, State of North Carolina, Defendants.

140 F. Supp. 252

CONTINENTAL BANK & TRUST COMPANY, a Utah corporation, Receiver of Inland Empire Insurance Company, Petitioner, v. Charles F. GOLD, Commissioner of Insurance, State of North Carolina, and Edwin Gill, State Treasurer, State of North Carolina, Defendants.

Civ. No. 914.

United States District Court E. D. North Carolina, Raleigh Division.

March 28, 1956.

Thomas A. Banks, Raleigh, N. C., for petitioner.

Rudolph I. Mintz, Wilmington, N. C., for intervenors.

William B. Rodman, Jr., Atty. Gen., State of N. C., T. Wade Burton, Asst. Atty. Gen., for defendants.

GILLIAM, District Judge.

The Louisville Fire and Marine Insurance Company once qualified to do business in North Carolina. One of the qualifications that a foreign corporation must meet for engaging in the insurance business in this State is that such a company must turn over to the State Commissioner of Insurance a deposit of securities. The Louisville Company made the necessary deposit which amounted to $50,000. Later the risks of the Louisville Company were reinsured, with the requisite consent of the Commissioner, by the Inland Empire Insurance Company, a corporation of Idaho with main offices in Utah. The $50,000 deposit remained as before except that it then qualified the Inland Company rather than the Louisville Company to carry on the insurance business here.

On November 29, 1955, the United States District Court in Utah entered an order appointing petitioner, The Continental Bank and Trust Company, Receiver for the Inland Company. A copy of the order of appointment was filed in this Court on December 6, 1955, within ten days after entry of the appointment, as required by Sec. 754, Title 28, U.S.C.A. By virtue of this statute, the receiver was vested with "complete jurisdiction and control" of all property of the Inland Company located within this district.

On January 17, 1956, H. L. Whitt commenced an action in the North Carolina Superior Court in Wake County against the North Carolina Insurance Commissioner. That suit was authorized under the provisions of N.C.G.S. § 58-185, which provides, in effect, for a class action against the Commissioner for the purpose of subjecting the statutory deposits held by the State Treasurer to the payment of unsatisfied insurance claims of North Carolina citizens, residents, or owners of insured property within the State.

On January 19, 1956, the United States District Court in Utah entered an order "that the receiver shall proceed to take lawful and necessary steps to take into its hands the deposits of Inland Empire Insurance Company and Louisville Fire & Marine Insurance Company on file in the various states where these companies did business and made such deposits." And "that in making disbursement of said deposits the receiver shall strictly observe any rights or priorities established in said deposits in favor of certain policy holders and creditors by the laws of the respective states where such deposits are on file."

Pursuant to this order the receiver filed in this Court on February 2, 1956, a petition and motion to show cause why the Commissioner of Insurance and the Treasurer of North Carolina should not be ordered to turn over to the receiver the $50,000 statutory deposit in question. The Commissioner filed an answer resisting the motion, and H. L. Whitt also filed an answer along with a petition for leave to intervene as codefendant. This petition of H. L. Whitt is allowed.

The District Court in Utah on February 6, 1956, entered an order which sets out how claims may be filed against assets that come into the hands of the receiver.

Whitt's action against the Commissioner in the North Carolina Superior Court has been voluntarily held in abeyance pending this Court's decision on the motion now under consideration. A hearing was held before the undersigned, and the receiver, the Commissioner of Insurance, and North Carolina claimants were present through counsel.

The receiver's motion and petition filed with us alleges the requisites for invoking the jurisdiction of this Court because of diversity of citizenship and an amount over $3,000 in controversy. Title 28, U.S.C.A., § 754, grants the receiver capacity "to sue in any district without ancillary appointment". In that section Congress also enacted that "(a) receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall, upon giving bond as required by the court, be vested with complete jurisdiction and control of all such property with the right to take possession thereof".

Paragraph VI of the receiver's motion asserts that "among the assets of the Inland Empire Insurance Company, which petitioner has been authorized and empowered to take into its possession, is a deposit of Fifty Thousand ($50,000.) Dollars in Government Bonds with the defendant". This assertion raises the question which is determinative in this case. Is the statutory deposit held by the defendants an asset or property of the defunct Inland Empire Insurance Company within the meaning of Title 28, U.S.C.A., Sec. 754.

The order entered in the District Court in Utah on January 19, 1956, does not purport to adjudicate the question of title in the deposited securities which that Court's receiver now seeks. Indeed the language of that order, set out above, contemplates that an adjudication of title in other forums will be required. The order empowers the receiver to institute litigation for that purpose.

I have quoted the applicable language of Title 28, U.S.C.A., Sec. 754. The reviser's note beneath that section includes the following language. "The revised section permits the receiver appointed by any district court to control all property of the defendant in whatever district the property is situated." (Emphasis added.)

In accord with the announced purpose of this act of Congress, it is open for this Court to determine what is the "property of the defendant" within this District. Such a decision will in no way conflict with the rule laid down in Link v. Powell, D.C., 57 F.2d 591.

That case was decided under former Sec. 117 of Title 28, U.S.C.A. A railroad was in receivership in District No. 1. Some property of the Company lay within District No. 2. District Court No. 2 was without jurisdiction to impress a lien upon that property.

That is not the situation in the case before this Court. My problem is to determine whether the securities held by the North Carolina Commissioner of Insurance with the State Treasurer are the property of the defendant in the Utah Court, Inland Empire Insurance Company; and thus whether they constitute a proper subject for the receiver's possession and control within the act of Congress.

To treat the Utah District Court's order of January 19, 1956, as an adjudication of the question would work an injustice to the good reasoning of my brother judge. The Commissioner received no notice of the hearing on the motion for the January 19th order. It was the Court's duty to require such notice "if satisfied that the delay involved in adopting that course would not result in the sacrifice of any vital interest of the insolvent corporation, its creditors or its stockholders". Commonwealth of Pennsylvania v. Williams, 294 U.S. 176, at pages 185-186, 55 S.Ct. 380, at page 385, 79 L.Ed. 841. Furthermore, absent a showing that the State procedure for handling the securities "is inadequate, or that it will not be diligently and honestly followed" it would be a flagrant abuse of the Federal Court's discretion to order the securities delivered to its receiver. Commonwealth of Pennsylvania v. Williams, supra, 294 U.S. at page 183, 55 S.Ct. 380. Also see: Gordon v. Ominsky, 294 U.S. 186, 55 S.Ct. 391, 79 L.Ed. 848; Penn. General Cas. Co. v. Commonwealth of Pennsylvania ex rel. Schnader, 294 U. S. 189, 55 S.Ct. 386, 79 L.Ed. 850; Gordon v. Washington, 295 U.S. 30, 55 S.Ct. 584, 79 L.Ed. 1282.

The first contention of the Commissioner in opposition to the receiver's motion is that the motion constitutes a suit against the State within the ban of the Eleventh Amendment to the Constitution of the United States. In Hobbs v. Occidental Life Ins. Co., 10 Cir., 87 F.2d 380, a similar argument was raised. We adopt the opinion of the Court, 87 F.2d at page 383, and in accordance with that reasoning deny the motion to dismiss on the above stated constitutional basis.

As to the merits of the motion, the status of the deposit is necessarily governed by the statutes that create it. In United States v. Knott, 298 U.S. 544, 56 S.Ct. 902, 80 L.Ed. 1321, a New Jersey surety company became insolvent and was placed in the hands of a State liquidator in New Jersey. The liquidator brought an action to recover from the State Treasurer of Florida securities deposited by the Company upon its admission to do business in Florida. The United States intervened, claiming priority rights in the securities by virtue of Title 31, U.S.C.A., Sec. 191. The Supreme Court held that the judgment debts due the United States must first be satisfied.

The decision was based upon the Florida Supreme Court's interpretation of the Florida deposit statutes. These statutes were held to only create an inchoate lien on the securities for the benefit of Florida judgment creditors of the foreign surety company. Such a scanty lien was...