First Nat. Ben. Soc. v. Garrison

• Decision Date: 16 January 1945
• Docket Number: Civil Action No. 3895 O'C.
• Citation: 58 F. Supp. 972
• Parties: FIRST NAT. BEN. SOC. v. GARRISON, Insurance Com'r of California, et al.
• Court: U.S. District Court — Southern District of California

58 F. Supp. 972

FIRST NAT. BEN. SOC. v. GARRISON, Insurance Com'r of California, et al.

Civil Action No. 3895 O'C.

District Court, S. D. California, Central Division.

January 16, 1945.

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COPYRIGHT MATERIAL OMITTED

Earl Blodgett, of Los Angeles, Cal., and Robert R. Weaver, of Phoenix, Ariz., for plaintiff.

Robert W. Kenny, Atty. Gen., of California, and T. A. Westphal, Jr., Deputy Atty. Gen., for defendants.

J. F. T. O'CONNOR, District Judge.

In the above entitled action, the First National Benefit Society, a non-profit corporation organized and existing under the laws of the State of Arizona, the plaintiff herein, has filed in this court, under date of September 23, 1944, a complaint for an injunction against Maynard Garrison, Insurance Commissioner of the State of California, and H. F. Risbrough, Mae Barr Long and three Does as Deputy Insurance Commissioners of the State of California and Alvin J. O'Lein and Does IV and V, individually, alleging that it is a non-profit corporation duly organized and existing under and by virtue of the laws of the State of Arizona and operating by virtue of a certificate of authority from the Arizona Corporation Commission, that it is duly and regularly examined by the insurance department, a sub-division of the said Commission, at least once yearly, and is authorized by law to issue benefit certificates and is engaged exclusively in the business of furnishing benefits upon the death of its members, with its principal place of business in the City of Phoenix, Arizona, but that it has never maintained an office or agency in the State of California and has never done business in the State of California. Plaintiff further alleges that it has members in several States of the United States including many members in the State of California, and that many of them were acquired by application by mail from the member to the home office in Phoenix, Arizona; that many of them were acquired by contract of assumption from California corporations; that all applications for certificates in the plaintiff corporation are accepted or rejected in the city of Phoenix, Arizona; that all certificates of membership are issued at Phoenix, Arizona, and all premiums, dues and assessments are payable directly to the home office at Phoenix, Arizona. The complaint, after alleging the requisite jurisdictional facts, continues:

"That plaintiff has upon many occasions received inquiries from persons residing in the State of California in regard to its insurance policies or benefit certificates and has thereupon sent its representatives, also members of the said Society, to call upon persons making such inquiries; that applications have been signed by the said residents of California and thereupon forwarded to the home office for acceptance or rejection; that upon acceptance of the said applications the policies are issued at the home office at Phoenix, Arizona, and mailed directly to the insured with notice to pay all premiums at the home office; * * * that upon many occasions the defendant, Maynard Garrison, acting through his deputies, under claim of right but actually without right and in violation of the commerce clause of the Constitution of the United States Article 1, § 8, cl. 3, and repugnant to the Fourteenth Amendment of the Constitution of the United States, has interfered with the said representatives and has threatened them with prosecution if they persisted in aiding in such transactions."

The complaint then gives the names of persons who have been ordered not to assist in such transactions for plaintiff, which transactions, according to the plaintiff, constitute interstate commerce and the assistance rendered by these agents is but one step in a chain of events constituting an interstate transaction. The complaint further alleges that said defendants in the past have interfered with, and threaten to continue in the future their interference with, any representatives of plaintiff aiding in such interstate transactions to the great and irreparable injury to plaintiff; that pecuniary compensation would not afford adequate relief and that plaintiff has no plain, speedy or adequate remedy at law as it would involve a multitude of legal actions to determine the rights of agents in each individual case.

Further, the complaint continues, that plaintiff is qualified to do a life insurance business in Arizona; that there is no provision for the admission of any such company in the State of California on any basis whatsoever; that only those foreign companies which transact their life insurance business on the legal reserve basis or fraternal basis can be so qualified; that the State of California has not regulated and has no provision for the regulation of such business but has excluded all foreign companies from transacting such business within its borders but does provide for the regulation of local companies transacting that business and that the defendants have been and are continuing to discriminate against plaintiff and to interfere with its interstate transactions. (Italics supplied.)

Further continuing: "That the defendants under a claim of right, but actually wrongfully and unlawfully did write and orally counsel members of the said First National Benefit Society, and did advise said members to sever connections with the said society and forfeit their certificates therein; that said defendants advised members of said society that its certificates were `illegal' and that they were `not worth the paper they were written on', which statements are false and untrue, and that said defendants entered upon a campaign of molestation and interference with members of said plaintiff; and that plaintiff has already been damaged in the sum of one million two hundred thousand dollars."

While the complaint goes further into detail, it is believed that the foregoing enumerated facts, as alleged in the complaint, reflect a comprehensive picture of the plaintiff's contention, and will be a sufficient predicate for the fundamental principles of constitutional law which the court will apply thereto in rendering a decision in this case. The defendant Alvin J. O'Lein, sued individually, has been voluntarily dismissed from the case.

To this complaint the defendants, not as individuals, for they are not being sued as individuals, but in their legal capacities, have filed a motion to dismiss or a motion for a more definite statement under the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723, together with their points and authorities. Counsel for the plaintiff has filed his points and authorities in opposition thereto, the matter came before the court for argument and was thereupon submitted on briefs to be filed. These briefs have been filed, and the motion of the defendants to dismiss or for a more definite statement is now before the court for decision; and, for the purpose of rendering an opinion in this case, it must be assumed by the court that all of the allegations in the complaint for injunction and damages are true.

Counsel for both sides have been exceedingly helpful to the court in furnishing extensive points and authorities and briefs on this very important subject which have been quite illuminating. As the court views the facts, this case can be readily determined on three basic principles of constitutional law, namely, (1) the commerce clause of the Federal Constitution, (2) the police power, and (3) the right of a person to sue one of the United States without its consent, under the Eleventh Amendment to the Federal Constitution. The court takes judicial notice that insurance is now interstate commerce under the commerce clause of the Federal Constitution (Article I, Sec. 8, Clause 3), in accordance with the Supreme Court decision in the case of United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 Sup.Ct. 1162, 88 L.Ed. 1440, subject to legislation by the National Congress and that thus far the National Congress has not passed any legislation on this phase of our national life as a result of the foregoing decision. There being no insurance cases which have been decided subsequent to this decision that would be illuminative to the court in deciding this case, it will be necessary, in reaching a decision, to deal with analogous situations.

As to the status of the plaintiff in California, from the standpoint of the Insurance Commissioner, Maynard Garrison, counsel for the defendants in their opening brief have this to say:

"Plaintiff states in its allegations that it is a mutual non-profit benefit insurance company. Its character is clarified by plaintiff in the statement contained on page 8, lines 21-24, of its Points and Authorities in opposition to Defendant's motion to dismiss and/or motion for more definite statement that Chapter IX of the California Insurance Code being Sections 10810 to 10940 provide for California companies on a stipulated premium plan and are similar to the plan of plaintiff, * * * This description, and particularly the reference to Section 10810, can only mean that plaintiff issues death benefit certificates under a stipulated premium plan, with a right of assessment against certificate holders.

"Such a plan of operation was permitted in California, both as to foreign insurance and domestic insurers, prior to 1939, provided that certain reserves were maintained (Calif.Stats.1935, Chap. 282 p. 1001.) Under the provisions of California statutes of 1939, Chapter 327 p. 1663, such companies, known as Chapter 9 companies, organized prior to 1939 were and are permitted to continue in business in this State, but Section 10818 of the Insurance Code forbids any new insurer to be organized or admitted under that chapter on and after January 1, 1940, with certain exceptions not here relevant.

"This ban on Chapter 9 companies applies equally to foreign and to domestic companies so that plaintiff is not...