Beidenkopf v. Des Moines Life Ins. Co.

• Decision Date: 02 July 1913
• Citation: 142 N.W. 434,160 Iowa 629
• Parties: BEIDENKOPF v. DES MOINES LIFE INS. CO. ET AL.
• Court: Iowa Supreme Court

160 Iowa 629

142 N.W. 434

BEIDENKOPF

v.DES MOINES LIFE INS. CO. ET AL.

Supreme Court of Iowa.

July 2, 1913.

Appeal from District Court, Polk County; Charles S. Bradshaw, Judge.

Action in equity to enjoin the sale and transfer of the business and property of the Des Moines Life Insurance Company. Application for issuance of preliminary injunction denied, and plaintiff appeals. The material facts are stated in the opinion. Affirmed.Louis S. Posner, of New York City, and Schenk & Lehmann, of Des Moines, for appellant.

Locke & Locke, of Dallas, Tex., and Guernsey, Parker & Miller, of Des Moines, for appellees.

WEAVER, C. J.

The Des Moines Life Insurance Company is an Iowa corporation organized for the transaction of the business indicated by its title. Prior to October, 1907, it had been doing business as a mutual concern, but on the day named it was reorganized into a stock company, and adopted articles of incorporation appropriate to effectuate the change. Its capital stock was fixed at $100,000, divided into 1,000 shares of the par value of $100 each. Of these shares Charles E. Rawson and Louise C. Rawson, who were the principal figures in the company from the outset, held a numerical majority. The larger part of the minority stock was owned by Wilmot A. Harbach, a son-in-law of the Rawsons, and small holdings were in the hands of various individuals, among whom were the plaintiff herein and one Max Holtz, each owning one share. Plaintiff and Holtz were and are residents of New York. The company continued in active prosecution of the life insurance business, quite largely increasing the volume of insurance carried, as well as its showing of assets and profits, until the opening of the year 1912. On January 16, 1912, at the time and place fixed therefor in the articles of incorporation, the stockholders of the company assembled in annual meeting. Of this meeting plaintiff and Holtz were given no notice other than such constructive notice as was imparted by the provision of the articles naming the day, hour, and place of the annual meeting. That meeting was attended by the holders of 983 of the 1,000 shares of stock issued and outstanding. The business of the annual meeting not being completed on January 16th, it was adjourned for one week, when the transactions took place over which this litigation has arisen. Prior to this date negotiations had been begun by the Rawsons (who for alleged considerations of health wished to retire from the company) looking to the reinsurance of the business of the Des Moines Life Insurance Company in the National Life Company, a corporation of the state of Illinois, and the sale of their shares of stock in the Des Moines Life Company to one Johnson, who owned a controlling interest in the National Life.

Referring to this situation, the stockholders at the meeting above mentioned adopted by unanimous vote a resolution as follows: “Resolved by the stockholders of the Des Moines Life Insurance Company in regular annual meeting duly assembled: That the inability of C. E. Rawson and L. C. Rawson, president and vice president respectively of the company, to whose unremitting efforts through a period of more than twenty years its past success has been chiefly due, to continue longer in the active management of its affairs, and the difficulty of securing officers of known experience, ability and integrity to take their places, render it advisable for the company to reinsure its outstanding liabilities and to retire from business. That the proposition made by National Life Insurance Company of the United States of America to reinsure the company's outstanding liabilities is satisfactory to the stockholders, and that the directors be, and hereby they are, authorized and requested to cause the proper officers of the company in its name and behalf to sign, seal, acknowledge, deliver and carry into effect a contract of reinsurance with said National Life Insurance Company of the United States of America in terms substantially as follows, to wit: [Here follows a copy of the contract with the National Life Company.] That from and after this date, the company transact no business except such as is properly incidental to the carrying out of such contract, and to the fulfillment of its existing obligations, and to the winding up of its affairs. That the directors be, and hereby they are, authorized and requested to take such steps as may be appropriate for the voluntary liquidation of the company's business.” The contract is too voluminous to be here set out. It assigns and transfers to the National Life all the property and assets of every kind and nature owned by the Des Moines Life, and empowers and authorizes the former company to collect and receive all premiums, reserves, and income thereafter becoming due and payable to the Des Moines Life. In consideration of such transfer of all the property and assets of the last-named company the National Life assumed as its own all the policy obligations and other indebtedness of the Des Moines Life except its liability to its stockholders. In addition to the foregoing, and as a further consideration for said sale and transfer, the National Life undertook to pay the Des Moines Life $300,000 cash and the further sum of $400,000 in five annual payments of $80,000 each. The contract being executed, the cash installment of $300,000 was paid. On January 24, 1912, Harbach, as secretary of the Des Moines Life, addressed letters to the plaintiff and Holtz, informing them of what had been done, and inclosing to each a check for $300 as a “first liquidation dividend.” In this letter the reasons for going into liquidation were stated as follows: “Owing to the continued ill health of Mr. C. E. Rawson, who has been for many years the president and manager of this company, it became necessary either to change the management of the company or to arrange with some other company to perform its obligations. All things considered, it seemed that the latter course was most advantageous to the stockholders and the policy holders alike, provided suitable arrangements could be made with a company of the requisite financial strength and business character.” The letter proceeds then to say that the National Life appears to be one of the necessary financial soundness, and the stockholders thus addressed are informed of the essential features of the sale and transfer. On January 30, 1912, plaintiff and Holtz, who appear to be acting together, each addressed a letter to Harbach protesting that they had been given no notice of the meeting or of the proposed sale of the business, expressing their objection thereto, and returning the checks which had been sent them. No legal proceedings were instituted to prevent the carrying out of said contract until April 23, 1912, when this action was begun.

In his petition plaintiff sets out the facts above stated, and further alleges that Rawson and his wife were in substantial control of the business of the company under its original organization, and that the change thereof to a stock company was designed to perpetuate such control, and to enhance their personal profits in the business, and that said persons did in fact continue in such management until the date of the attempted liquidation. He further alleges that at the date of such liquidation the company was solvent and in the enjoyment of a large, profitable, and growing business, and owned and possessed property, money, securities, and other assets largely in excess of the securities and reserves which it was required to retain for the benefit of its policy holders, and that in such excess or accumulation of profits plaintiff was entitled to share in just proportion with other stockholders; that in making the sale of said assets and business to the National Life, and in entering upon a liquidation of its affairs, the said Des Moines Life exceeded its powers, and that the resolution authorizing such sale and the contract made in pursuance thereof are void and of no effect. He further charges that the officers of said company knew that plaintiff and other stockholders would be opposed to such proceedings and would not consent thereto, and that to prevent their opposition being made effective notice of the contemplated meeting and of the proposed sale to the National Life was fraudulently withheld from them until after the contract had been made. It is further charged that the sale of the assets and business of the company is in fact and in legal effect an attempted dissolution of the corporation, and in pursuance of such design its offices have been closed, and it has ceased to do or transact the business for which it was authorized, although under the terms of its organization it has yet many years of corporate life, and its dissolution cannot lawfully be effected except by the unanimous consent of its stockholders. As further illustrating the alleged fraudulent character of the transaction, plaintiff says that after the sale had at least been tentatively negotiated by the Rawsons at a figure making the stock worth at least $700 a share, said Rawsons, aided by Harbach, the secretary, and one Donahey, a director of the company, entered upon an organized effort to purchase the stock held by the minority members at the price of $200 per share, and by falsely representing or concealing the fact and terms of the proposed sale to the National Life did in fact induce many of said stockholders to part with their shares at the grossly inadequate price of $200, and that the shares so obtained were by the purchasers voted in favor of ratifying and carrying out said contract of sale. He further alleges that the officers and directors of the company having had part and share in all said wrongful transactions, application to them to bring this action would be unavailing, and that he as a stockholder is entitled to bring the same in his own name and for himself and for all...