Cope v. Aetna Finance Company of Maine, 7214.

• Citation: 412 F.2d 635
• Decision Date: 21 May 1969
• Docket Number: No. 7214.,7214.
• Parties: Gerald S. COPE, Trustee, et al., Appellants, v. AETNA FINANCE COMPANY OF MAINE, Appellee. In the Matter of Robert R. RICHARDS et al., Debtors.
• Court: U.S. Court of Appeals — First Circuit

412 F.2d 635 (1969)

Gerald S. COPE, Trustee, et al., Appellants, v. AETNA FINANCE COMPANY OF MAINE, Appellee.

In the Matter of Robert R. RICHARDS et al., Debtors.

No. 7214.

United States Court of Appeals First Circuit.

Heard January 9, 1969.

Decided May 21, 1969.

As Amended on Denial of Rehearing June 24, 1969.

Charles W. Smith, Saco, Me., with whom James R. Flaker, Gerald S. Cope, Portland, Me., and George P. Limberis, Bangor, Me., were on brief, for appellants.

John J. Flaherty, Portland, Me., with whom Edward L. Caron, Biddeford, Me., and Berman, Berman. Wernick & Flaherty, Portland, Me., were on brief, for appellee.

Before ALDRICH, Chief Judge, McENTEE and COFFIN, Circuit Judges.

COFFIN, Circuit Judge.

This is an appeal from the district court's order allowing the claim of appellee, Aetna Finance Company of Maine, in proceedings under Chapter XIII of the Bankruptcy Act. In re Richards, 291 F. Supp. 537 (D.Me.1968).

The facts are clearly set forth in an earlier order by the district court, In re Richards, 272 F.Supp. 480 (D.Me.1967), and are summarized as briefly as possible hereafter. On December 7, 1963, the debtors, Robert R. and Gail L. Richards, filed petitions for wage earner plans under Chapter XIII of the Bankruptcy Act. In the schedules attached to their petitions, the debtors listed a debt to appellee in the amount of $957.22, secured by a chattel mortgage on household goods, with the notation that the debt was disputed as being in violation of the Maine Small Loan Law.¹

At the first meeting of creditors appellee presented a proof of claim for $957.22 to which was attached a copy of the note, the chattel mortgage, ledger cards of the transaction, and an affidavit of Aetna's local manager that to the best of his knowledge and belief "no usury has been charged said debtors on said account." The referee continued the question of the validity of Aetna's claim for later determination, and proceeded to enter an order declaring the plan accepted, appointing a trustee and confirming the plan.

On December 22, 1964, one year after confirmation of the plan, the trustee for the first time filed formal objections to Aetna's claim. Finally, on June 29 and July 9, 1965, hearings on the validity of Aetna's claim were held before the referee.

The evidence presented at the hearing disclosed that the debtors borrowed money from Aetna on two occasions — March 4, 1961, and July 2, 1962. On the second occasion the debtors signed a note in the face amount of $1,174.73² which provided for payment of maximum interest under Maine law. The note also included credit health and accident, and life insurance premiums of $151.16.

The referee found that the debtors were charged an amount for credit insurance which was in excess of any amounts authorized to be charged for credit insurance under the Maine Credit Insurance Law, 24 M.R.S.A. §§ 1201-1214 (1964). The referee then concluded that Aetna's loan was void under the Small Loan Law and he disallowed the claim. The basis of the referee's order was twofold: (1) that the amount charged was unauthorized; and (2) that Aetna had failed to establish that its claim was free from usury as required by § 656(b) of the Bankruptcy Act, 11 U.S.C. § 1056(b) (1964).³

The district court, on July 20, 1967, reversed the referee's order on both points. First, it held that the section of the Maine Credit Insurance Law dealing with authorized premiums, § 1208(1), was directed at insurers and did not impose any responsibility on the creditor for an unauthorized charge.⁴ Secondly, the district court held that § 656(b) was applicable only before confirmation and hence could not be invoked with respect to Aetna's claim.⁵

Upon remand, with the district court sitting in place of the referee, evidence was presented to determine whether Aetna had charged the debtors an amount in excess of the premium charged it by the insurer.⁶ The district court found that Aetna had not in fact charged the debtors more than the amount charged Aetna by the insurer. It also concluded that even had Aetna charged the debtors more than it had been charged, there would have been no violation of the Maine Small Loan Law because of the exemption granted by § 1209 of the Maine Credit Insurance Law.⁷ The district court then allowed Aetna's claim in full. 291 F. Supp. 537 (D.Me.1968).

Before proceeding to the merits of this appeal, we must first consider the contention made by appellee that the ruling of the district court on July 20, 1967 declaring inapplicable § 1208(1) of the Credit Insurance Law is not appealable by virtue of the time limitation of § 25(a) of the Bankruptcy Act.⁸ Appellee's position is that the July 20, 1967 order was rendered in "proceedings in bankruptcy" and hence was appealable whether interlocutory or final. We are inclined to agree that the case is one of "proceedings in bankruptcy" within the meaning of §§ 24(a) and 25(a).⁹ However, such a conclusion would not be dispositive of the question presented.

Not every interlocutory order entered in bankruptcy is appealable. At a minimum an order must represent a formal exercise of judicial power deciding some step in the proceedings. See generally, 2 Collier on Bankruptcy ¶ 24.39. See, e. g., Hoehn v. McIntosh, 110 F.2d 199, 200 (6th Cir. 1940); Matter of Haytian Corp. of America, 112 F.2d 146 (2d Cir. 1940).¹⁰ The critical question is whether the July 20, 1967 order was determinative of the rights of the parties. We conclude that it was not. While the district court did resolve certain issues against appellant, it did not allow or disallow appellee's claim.¹¹

We therefore hold that this court may consider issues involved in the July 20, 1967 order. This approach not only reflects the sound policy of discouraging piecemeal litigation but particularly accords with the context out of which this case arose — something of a test case in which the court has painstakingly tried to move, step by step, to narrow the issues without foreclosing eventual appeal rights of the unsuccessful party.

We come at last to the merits of this elusive case. Its elusiveness — apart from its arcane procedural issues — arises from the application of two regulatory statutes, the Small Loan Law and the Credit Insurance Law, to a rather extraordinary factual situation. The half century old Small Loan Law, see n. 1, contains a stark, blanket proscription against a creditor imposing on a debtor any "other charge or amount whatsoever" in addition to interest. If excess charges are made, "the contract of loan shall be void". The Credit Insurance Law was enacted in 1961 and was designed to provide comprehensive regulation of the sale of credit insurance. It expressly permits the lender to require a debtor to obtain credit insurance as a precondition to a loan, and the lender is permitted by § 1209 to market the insurance without running afoul of the provisions of the Small Loan Law. In return for these privileges, the law also imposes certain obligations on the insurer and the lender. Section 1208(1) enjoins the insurer from charging premiums in excess of those authorized by the Maine Insurance Commission. Section 1208(4) prohibits a lender from charging the debtor more than the lender was charged by the insurer. Section 1214 empowers the Maine Insurance Commissioner to impose sanctions for violations of his orders, ranging from civil penalty to revocation of license.

In the ordinary situation, where an insurer establishes a premium rate conforming to the requirements of § 1208 (1), and where the creditor merely passes on the premium so charged to the borrower in accordance with § 1208(4) — even though the premium may include some amount for "cost and compensation to the creditor" under the authority of § 1207(2),¹² there is no problem of violation of the Small Loan Law. There might even be no problem for the creditor if the insurer imposed on it a higher than authorized premium charge. The district court may well be correct in saying that such an infraction of the Credit Insurance Law is solely within the sanctioning power of the Insurance Commissioner and that § 1208(1) does not "attribute to the creditor accountability for the sins of the insurer." 272 F.Supp. at 487. We agree that the statutory scheme of the Credit Insurance Law clearly distinguishes between the obligation of the insurer and that of the creditor. The underlying assumption is that separate entities, making separate and independent decisions, shall be separately responsible for decisions within their sphere of responsibility.

The case before us, however, is not the ordinary situation contemplated by the statute. In this case the court observed "that this record reveals abuses on the part of the lenders and insurers involved which cry out for immediate and effective regulatory action." 291 F.Supp. at 541. Footnoting this observation was the finding: "There can be little doubt on this record that Aetna of St. Louis, American Universal and Old Republic acted jointly to fix premium rates to be charged Aetna debtors which would provide a substantial profit to American Universal as reinsurer." 291 F.Supp. at 541, n. 10.

The interrelationship of the various parties relevant to this finding is pertinent to our decision. Aetna of Maine was a wholly-owned subsidiary of Aetna of St. Louis, with the same officers and directors. The latter also was the sole owner of American Universal Life Insurance Company of St. Louis, which shared at least some of the officers and directors of Aetna of St. Louis. Old Republic was a large, independent credit insurance company, Aetna of St. Louis being one of some 750 accounts.

Old Republic, having a license to issue insurance in Maine, which American Universal lacked, also had the benefit of knowledge of insurance laws in the various states, the ability to devise and supply appropriate forms, rate charts, and policies, and useful actuarial and legal competence. It was these...