Ex parte Mutual Sav. Life Ins. Co.

Decision Date18 November 1988
Citation536 So.2d 1378
CourtAlabama Supreme Court

Roger S. Morrow and Joel H. Pearson of Morrow, Romine & Pearson, and Robert M. Alton, Jr., Montgomery, for petitioner.

Henry C. Barnett, Jr., of Capell, Howard, Knabe & Cobbs, Montgomery, for respondent.

BEATTY, Justice.

Petition for a writ of mandamus directed to the Honorable Gary L. McAliley, Judge of the Circuit Court of Coffee County. The petition seeks to have Judge McAliley vacate his order granting a preliminary injunction in favor of National Security Insurance Company in litigation between it and this petitioner. In the alternative, petitioner seeks to have that case transferred to the Montgomery Circuit Court and seeks other relief. For the reasons that follow, the writ is granted.

National Security Insurance Company ("National Security") is an insurance company organized under Alabama law with its principal place of business in Elba, Coffee County. Mutual Savings Life Insurance Company ("Mutual Savings") is also an Alabama insurance company, with its principal place of business in Decatur, Alabama. Mutual Savings is a member of Victory Financial Group, Inc., an insurance holding company whose executive offices are located in New Orleans, Louisiana. National Security sued Mutual Savings in Coffee County, Elba Division, seeking sequestration of 226,243 shares of National Security common stock that it claimed had been illegally acquired by Mutual Savings, to prohibit Mutual Savings from voting those shares, and to compel the divestiture of those shares by Mutual Savings. As the basis for this relief, National Security alleged that Mutual Savings, in contravention of Code of 1975, § 27-29-3(a), illegally acquired the subject shares and ultimate voting control thereof, notwithstanding the fact that the selling shareholders remained shareholders of record. National Security further alleged that Mutual Savings might attempt, either directly or indirectly, to vote those shares and thus profit by its illegal act, or would attempt to dispose of them in violation of the Insurance Holding Company System Regulatory Act, Code of 1975, § 27-29-1 et seq. Thus, according to petitioner, this action was commenced under § 27-29-9.

Under the Insurance Holding Company System Regulatory Act, § 27-29-9(b):

"If an insurer ... has reason to believe that any security of the insurer has been, or is about to be, acquired in contravention of the provisions of this chapter or of any rule, regulation or order issued by the commissioner under this chapter, the insurer ... may apply to the circuit court for Montgomery county or to the circuit court for the county in which the insurer has its principal place of business to enjoin any offer, request, invitation, agreement or acquisition made in contravention of section 27-29-3 or any rule, regulation or order issued by the commissioner thereunder to enjoin the voting of any security so acquired, to void any vote of such security already cast at any meeting of shareholders and for such other equitable relief as the nature of the case and the interests of the insurer's policyholders, creditors and shareholders or the public may require." (Emphasis added.)

The Act also provides for sequestration of voting shares in § 27-29-9(c):

"In any case where a person has acquired ... any voting securities in violation of this chapter or any rule, regulation or order issued by the commissioner under this chapter, the circuit court for Montgomery county or the circuit court for the county in which the insured has its principal place of business may, on such notice as the court deems appropriate, upon the application of the insurer or the commissioner, seize or sequester any voting securities of the insurer owned, directly or indirectly, by such person and issue such orders with respect thereto as may be appropriate to effectuate the provisions of this chapter. Notwithstanding any other provision of law, for the purposes of this chapter the situs of the ownership of the securities of domestic insurers shall be deemed to be in this state." (Emphasis added.)

After National Security's complaint was filed, the trial court set the case for a hearing on a request for preliminary injunction. Mutual Savings moved to dismiss the complaint upon a number of grounds, viz.: (1) that the Coffee Circuit Court lacked jurisdiction; (2) that Coffee County was an improper venue; and (3) res judicata and collateral estoppel. The trial court overruled the motion to dismiss, whereupon Mutual Savings answered, asserting as defenses the same matters raised in its motion to dismiss. At the hearing on the preliminary injunction, a certified copy of a hearing conducted in connection with the acquisition in question before the Alabama insurance commissioner and a certified copy of the pending appeal of the commissioner's order that was filed in the Montgomery Circuit Court were entered into evidence. The Coffee Circuit Court heard oral argument on the request for a preliminary injunction, thereafter ordering Mutual Savings, among other things, not to directly or indirectly vote any of the National Security shares owned by Mutual Savings or to divest itself of those shares. The case was also set for a final hearing on a later date. Mutual Savings gave notice of appeal of that order to this Court.

It appears from the record that the controversy revolves around the acquisition of the block of National Security common stock that was owned by Atlantic American Corporation, apparently a Georgia corporation located in Atlanta. This block of stock represented a 22.2 percent interest in National Security. J. Darrell Jordan, president of Victory Financial Group, Inc., had engaged in discussions early in 1987 with Atlantic American Corporation concerning a possible purchase, but, thinking that the price was excessive, declined further interest. However, on May 13, 1987, Jordan received a telegram from Atlantic American inquiring whether Jordan would be interested in reopening negotiations within a certain price range. Jordan replied on that day with an offer to negotiate, concluding with this statement: "We would file a disclaimer of control in Alabama and not require any documentation so our transaction could be completed in short order." (Emphasis added.)

On May 14, 1987, Jordan and Atlantic American Corporation agreed upon a price. At this time Mutual Savings had not communicated with the Alabama commissioner of insurance with any filing, or otherwise. However, Jordan did contact his lawyer in Birmingham concerning the transaction, and his lawyer, in turn, on May 15, 1987, telephoned a representative of the Alabama Insurance Department to inquire whether the disclaimer procedure set forth in Code of 1975, § 27-29-4(i), would apply to a transaction in which more than 5 percent of an Alabama insurer was sought to be acquired but without control of the corporation itself. The concern over the disclaimer doubtless resulted from the provisions of § 27-29-3(a), which provides in pertinent part:

"(a) Filing and approval requirements--No person other than the issuer shall make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities for or acquire in the open market any voting security of a domestic insurer if, after the consummation thereof, such person would, directly or indirectly, or by conversion or by exercise of any right to acquire, be in control of such an insurer, and no person shall enter...

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