Collins v. Bolton

Decision Date27 June 1968
Docket NumberNo. 68C 295.,68C 295.
Citation287 F. Supp. 393
PartiesAmelia and Inwood COLLINS, Velma Smith, Thomas C. Boyd, Leon Niecikowski, on behalf of themselves and others similarly situated, Plaintiffs, v. John F. BOLTON, Director of Department of Insurance of State of Illinois, as Liquidator of Multi-State Inter-Insurance Exchange, Defendants.
CourtU.S. District Court — Northern District of Illinois


Marshall Patner, Gordon H. S. Scott, Legal Aid Bureau, Chicago, Ill., for plaintiffs.

Jerome Torshen, Lawrence Friedman, Chicago, Ill., for defendant.


MAROVITZ, District Judge.

Plaintiffs' Motion for Preliminary Injunction and for Convention of a Three-Judge Court

Defendant's Motion for Judgment on the Pleadings

This is a purported class action, brought by a group of policyholders of the Multi-State Inter-Insurance Exchange (Multi-State), a reciprocal automobile insurance company, against John F. Bolton, Director of the Department of Insurance of the State of Illinois. Defendant is a state officer charged under Illinois law with the regulation and supervision of insurance companies organized and/or doing business in the State. Ch. 73, § 204.1 et seq., Ill.Rev. Stat.

On September 11, 1964, pursuant to Ch. 73, § 800, Ill.Rev.Stat. defendant was appointed Liquidator of Multi-State in a Cook County Circuit Court proceeding (hereinafter known as the Liquidation Proceeding).1 Thereupon, he immediately became vested with the title to all property, contracts and rights of action of the company. Ch. 73, § 803, Ill.Rev. Stat.

Under their policies, plaintiffs were subject to an assessable contingent several liability equivalent to their annual premiums. Pursuant to Ch. 73, § 819, Ill.Rev.Stat., defendant sought and won an order from the court in the Liquidation Proceeding, dated August 31, 1966, authorizing and directing him to levy an assessment against all persons who had been policyholders of Multi-State during the 12 month period ending November 30, 1963. Section 819 provides: (in pertinent part)

(1) In the event of the entry of an order directing the Director to rehabilitate or liquidate any company which has issued assessable policies or contracts of insurance, the Director may, with leave of court, at any time during the pendency of the proceeding, levy such assessment or assessments against the members or subscribers of the company, as may be necessary to pay all allowed claims in full, to the same extent * * * that such assessment or assessments might have been levied by the board of directors, attorney-infact, or other governing body of the company.

Pursuant to the above order, defendant drew up a list of assessable policyholders containing names, last known addresses, and the amount of assessment due from each listed person. The levy of assessments was approved, ratified and spread of record by the Court by order of September 13, 1966.

Subsequent to September 13, 1966, and pursuant to his authority to levy an assessment, defendant sent to all listed policyholders a notice of assessment representing that he was authorized to make such as assessment, and demanding payment of said assessment. If any policyholder fails to pay the sum demanded, Section 819 provides that upon defendant's application, the Court shall issue an order directing said person to pay the assessment or show cause why he should not be held liable to pay it plus costs.

Plaintiffs assert that they were given no notice of the Petition for leave to levy an assessment, that none is required by Section 819; and, consequently, since they had no notice of the Liquidation Proceeding or of the request for authority to assess they were deprived of their rights without due process of law, in violation of the 14th Amendment. They seek injunctive relief declaring Section 819 to be unconstitutional, and voiding the Circuit Court orders of August 31 and September 13, 1966, and request a preliminary injunction to restrain defendant from seeking to enforce the pending assessment order pending the completion of this suit. Also, under Title 28 U.S.C. § 2281 et seq., they request the convention of a three-judge court to hear their complaint. Jurisdiction is posited upon the Civil Right Statutes, 28 U.S.C. § 1343, and 42 U.S.C. § 1983, and upon the general federal question jurisdictional grant, 28 U.S.C. § 1331.

The plaintiffs purport to represent a class of 34,816 policyholders subject to assessment, and claim that the action is proper under recently amended Rule 23 (a) and 23(b) (1) (B) of the Federal Rules of Civil Procedure.

Defendant moves for judgment on the pleadings. He alleges that none of the cited statutes support jurisdiction, and that the Court lacks jurisdiction of the subject matter. In this opinion we will consider both defendant's motion and plaintiffs' application for a three-judge court.

Initially, we believe the motion for judgment on the pleadings, pursuant to Rule 12(c), must be treated as a motion to dismiss for lack of subject matter jurisdiction. It raises only jurisdictional issues. A district judge to whom an application for a three-judge court is presented, of course, has authority to determine only jurisdictional questions, and may examine the merits solely to determine whether a substantial federal question is presented. Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 715, 82 S.Ct. 1294, 8 L.Ed.2d 794 (1962); Keyishian v. Board of Regents etc., 345 F.2d 236, 238 (2d Cir. 1965); Robinette v. Chicago Land Clearance Commission, 115 F.Supp. 669, 671 (N.D. Ill.1951).

It is settled that a motion for a judgment on the pleadings is a motion for a judgment on the merits. 2A Moore, Federal Practice, ¶ 12.15; Roemhild v. Jones, 239 F.2d 492 (8th Cir. 1957). Since defendant alleges only jurisdictional grounds for dismissal, the proper course is to consider the motion as one to dismiss for lack of subject matter jurisdiction.

Amount in Controversy

Plaintiffs assert that jurisdiction is proper under § 1331 which provides: (in pertinent part)

"(a) The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws or treaties of the United States."

On its face, the complaint undoubtedly alleges a claim based upon the Constitution of the United States. In passing upon the propriety of § 1331 as a basis for jurisdiction the issues to consider are whether the matter in controversy exceeds $10,000, and whether it arises under the Constitution or some federal law. If the complaint does not meet these tests, it must be dismissed for lack of subject matter jurisdiction. We will explore the substantiality of the federal question raised, infra, in considering whether to invoke a three-judge court. At this point, we will consider defendant's contention that the $10,000 jurisdictional minimum is not present.

Defendant argues that plaintiffs' contingent liability under their policies is several rather than joint or common. Since each policy's contingent liability is only a small fraction of $10,000, and since each policyholder essentially contests the procedure utilized in serving the assessment against him, defendant argues that the claims may not be aggregated to satisfy the jurisdictional requisite. Plaintiffs contrarily argue that in a class action under the new Rule 23, aggregation is permissible.

Under the old Rule 23, aggregation was permitted in "true" class actions where the asserted claim was "joint" or "common" and concerned the interests of the plaintiffs as a body, rather than the interests of the individual plaintiffs. Brown v. Trousdale, 138 U.S. 389, 11 S. Ct. 308, 34 L.Ed. 987 (1891). But where the parties asserted "hybrid" or "spurious" class actions, where the claims were in reality only those relating separately to individual members of the "class", aggregation was disallowed. Troup v. McCart, 238 F.2d 289 (5th Cir. 1956); Andrews v. Equitable Life Assurance Society, 124 F.2d 788 (7th Cir. 1941); Scott v. Frazier, 253 U.S. 243, 40 S.Ct. 503, 64 L.Ed. 883 (1920). 3 Moore, Federal Practice, ¶¶ 23.08-.10. The language of the insurance contracts at bar makes clear that each policyholder's liability is several, rather than joint or common. Hence, under the pre-amendment Rule 23 these claims would have constituted a "spurious" class action, and aggregation would not have been permitted. Aetna Insurance Company v. Chicago, R. I. & P. R. R. Co., 229 F.2d 584 (10th Cir. 1956); Andrews v. Equitable Life Assurance Society, supra; Matlaw Corp. v. War Damage Corp., 164 F.2d 281 (7th Cir. 1947).

New Rule 23, however, which became effective July 1, 1966, has eliminated the distinctions between "true" and "spurious" class actions, and has changed the emphasis from an abstract one based upon the legal relationships between the members of the class, to a pragmatic one exhibiting concern for the effect of class treatment upon judicial administration, and uniformity of decision.

Initially, we believe that this action is properly brought as a class action under Rule 23. It meets the requirements of Rule 23(a).2 Joinder of all affected policyholders would be extremely impractical. Each policyholder presents the identical questions of law and fact, so that the claims of the representative parties are typical of the claims of the class. Finally, the representative parties are typical of the class and are represented by competent and conscientious counsel from the Legal Aid Bureau. We believe they fairly and adequately represent the members of the class.

Furthermore, the action meets the requisites of at least one and perhaps more of the subsections of Rule 23(b).3 In addition to being impractical, the prosecution of separate actions on this claim would create the risks set forth in parts (1) (A) and (1) (B) of subsection (b). In addition, the question...

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