American Ins. Co. v. Lucas, 270-426
| Decision Date | 14 August 1940 |
| Docket Number | No. 270-426,270-426 |
| Citation | 38 F. Supp. 896 |
| Parties | AMERICAN INS. CO. v. LUCAS, Superintendent of Insurance Department of Missouri, et al. |
| Court | U.S. District Court — Western District of Missouri |
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William Marshall Bullitt, of Louisville, Ky., and David A. Murphy, of Kansas City, Mo. (E. R. Morrison and Homer H. Berger, both of Kansas City, Mo., on the brief), for Insurance Co.
Judge Charles L. Henson, of Jefferson City, Mo. (Charles J. Harvey, of St. Louis, Mo., and William G. Chorn, of Jefferson City, Mo., on the brief), for Ray B. Lucas and others.
Before STONE, Circuit Judge, and REEVES and OTIS, District Judges.
This opinion is arranged in main and subheadings, as to subject matter, as follows:
I. Statement. II. Contentions. III. Facts. (A) Outline of the Litigation. (B) Committees. (C) Groups. (D) Conduct and Control of Missouri Rate Litigation. (E) The Bribery and Collections of Money therefor. (1) Bribery negotiations. (2) Collections at New York for initial bribe payments. (3) Collections at Hartford for initial bribe payments. (4) Initial payments of bribe money. (5) Later payment of bribe money ($330,000.00). (6) Procurement of money for bribe payment of $330,000.00. IV. Discussion and Determination. V. Interest. VI. Motions to Strike Answers. VII. Costs and Expenses of Distribution.
May 28, 1930, one hundred and thirty-nine insurance companies filed 137 separate injunction suits against the Superintendent of Insurance and the Attorney General of Missouri to protect a proposed increase of premium rates for fire, windstorm and hail insurance filed by the companies with the Superintendent. After a hearing (on pleadings and affidavits) for temporary injunctions, such orders were entered upon conditions, one of which was that the company might collect the increased rate pendente lite but must deposit the amount of the increase so collected with a custodian of the court to await the ultimate outcome of the suits. Throughout several years during which the suits progressed toward final decrees, such deposits were made aggregating about $10,000,000.
May 18, 1935, before final determination of any of the suits, the then Superintendent (R. Emmett O'Malley) executed an agreement with C. R. Street ("agent" for the companies) whereby the Superintendent was to make an order allowing 80% of the increase and denying 20% thereof and declaring such order retroactive to the filing date of these suits; the impounded funds were to be distributed as provided therein; and the suits were to be dismissed. On May 21, 1935, the Superintendent made the rate order provided in the agreement. On June 22, 1935, the companies presented separate verified motions "for decree", stating that "the parties to this cause have by mutual agreement settled said cause and controversy involved therein, including the distribution of the funds impounded with the Court under its order and for a dismissal of this cause." Also, were filed separate stipulations "respecting distribution of the funds now impounded with the Custodian of this Court and to be impounded * * *." The motions prayed distribution of impounded funds in accordance with the stipulation "and that thereupon this suit shall be dismissed."
After proceedings involving interventions by a few policyholders (later withdrawn by them), separate decrees were entered on February 1, 1936, upon the above motions and stipulations. Each decree provided (1) that "this cause is hereby dismissed"; (2) that the impounded funds be distributed by the custodian to the persons and in the percentages set forth; (3) that jurisdiction be retained for purposes of costs, to effect the distribution, and "over all persons or parties affected by this decree * * * for all purposes of effectuating this decree." This distribution of impounded funds was to be 80% to the companies (of which 30% was to go to Robert J. Folonie and Charles R. Street, trustees) and 20% to the various policyholders from whom the premiums had been collected. Such payments to the companies and to the trustees were to be made "forthwith" and payments to policyholders were to be made as rapidly as possible.
Long after the above decrees had been entered and the above payments made to the companies and trustees and when practically all of the payments to policyholders had been completed,1 the then and present Superintendent (Ray B. Lucas) filed (May 29, 1939) and presented a motion for citation against each of the companies. Such motion stated that the above agreement of settlement of May 18, 1935, had been procured by bribery of O'Malley by Street and that the decrees of this court upon the above motions and stipulations had been procured by fraud upon this court and that such orders "especially respecting the distribution of the fund, were the direct result of the fraud practiced upon this Court." The prayer was for citations:
Counsel for the companies participated in the presentation of this motion — expressing entire willingness to return to the custodian all funds distributed by him to them and to the trustees — declaring they wished no fruits from the decrees, but reserving their rights to litigate what action this court should take after such return of funds by them.
Upon the same day, this court entered two orders in each case. One order required restoration (by July 1, 1939) by the companies to the custodian of all funds distributed by him to the companies and to the trustees under the decrees. The other order required the companies (by June 15, 1939) to show cause "Why all the funds which have been ordered to be returned by it to the Custodian, Wm. T. Kemper, Jr., heretofore appointed in this cause under order of this Court on this date, as well as all other sums of money in the hands of said Custodian, should not be distributed to the proper policyholders and this cause dismissed at the cost of the plaintiff, including the cost of such distribution to such policyholders."
The companies complied with the orders of restitution. They answered the "show cause" orders.2 The Superintendent filed a motion to strike the answers. July 3, 1939, this court referred to a special master to take testimony and "to analyze and summarize" the testimony. This order provided:
The purpose of the last just quoted sentence was expressly to hold open all questions of law until the court should have before it the entire fact situation.
The master has taken over 1,600 printed pages of testimony and filed such with his "analysis and summary" (in the form of a report). Briefs have been filed, oral argument heard and the issues submitted.
The Superintendent contends: (1) that corporations can act only through their agents and that they are bound by the acts of their agents committed within the scope of their authority and that C. R. Street was agent for all the plaintiffs in conducting this litigation and having bribed a public official and party to pending suits, the plaintiffs must be held to be bound by his acts and to suffer its consequences, among which is that the doors of equity must be shut upon their further claims for relief in suits so contaminated; and (2) that if the plaintiffs did not know that bribery was to be involved in this settlement, that they had such knowledge when the bribe was paid as to have been put upon inquiry.
The companies contend that the crux of the matter before this court is whether the separate companies had knowledge of the bribery transactions — meaning actual knowledge or facts sufficient to put upon inquiry. Absence of such knowledge is argued under four headings based upon conceived different fact situations as to various companies. The first heading covers 66 companies (mostly smaller companies) which made no contribution to the funds contributed to Street and used by him in the initial2a bribery payments. The second heading covers 13 companies which are in the same situation as the above 66 companies except that a vice-president of each of the three "groups" (making up the 13 companies) was a member of the Subscribers Actuarial Committee. The third heading covers 34 New York companies which contributed to the funds which Street used in the initial bribery payments. The fourth heading covers 26 Hartford companies which made like contributions.
Comparison of the just stated positions of the contending parties presents the issues: (I) whether actual or implied...
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