Fred S. James & Co. v. Second Russian Ins. Co.

• Decision Date: 21 January 1925
• Citation: 146 N.E. 369,239 N.Y. 248
• Parties: FRED S. JAMES & CO. v. SECOND RUSSIAN INS. CO.
• Court: New York Court of Appeals Court of Appeals

239 N.Y. 248

146 N.E. 369

FRED S. JAMES & CO.

v.SECOND RUSSIAN INS. CO.

Court of Appeals of New York.

Jan. 21, 1925.

Action by Fred S. James & Co. against the Second Russian Insurance Company. From an order of the Appellate Division (210 App. Div. 82, 205 N. Y. S. 472), affirming an order of the Special Term, denying defendant's motion that plaintiff be directed to reply to its defenses, defendant appeals by permission.

Order affirmed, and certified questions answered.

See, also, 208 App. Div. 141,203 N. Y. S. 231;-- App. Div. --, 206 N. Y. S. 905.

The Appellate Division certified the following questions:

(1) Is the new matter contained in the first separate defense set out in the answer, if true and not avoided in some manner, sufficient in law as a defense to the causes of action?

(2) Is the new matter contained in the second separate defense set out in the answer, if true and not avoided in some manner, sufficient in law as a defense to the causes of action?

(3) Is the new matter contained in the third separate defense set out in the answer, if true and not avoided in some manner, sufficient in law as a defense to the causes of action?

(4) Is the new matter contained in the fourth separate defense set out in the answer, if true and not avoided in some manner, sufficient in law as a defense to the causes of action?

Appeal from Supreme Court, Appellate Division, First Department.

Albert Massey and Michael S. Gleason, both of New York City, for appellant.

Carl Sherman, Atty. Gen. (Edward G. Griffin, of Albany, and J. Du Pratt White, of New York City, of counsel), for Superintendent of Insurance of State of New York.

David Rumsey and Louis J. Wolff, both of New York City, for respondent.

John W. Hogan, of Syracuse, and Paul Bonynge and Wendell P. Barker, both of New York City, for Anchor Ins. Co. of New York and others, amici curiae.

Frederick B. Campbell and Paul C. Whipp, both of New York City, amici curiae.

B. F. Sturgis and Hartwell Cabell, both of New York City, for John F. Murphy, amici curiae.

CARDOZO, J.

The Eagle, Star & British Dominions Insurance Company, Limited, plaintiff's assignor, entered into contracts or treaties with the defendant, Second Russian Insurance Company, a Russian corporation, by which the latter reinsured the former's marine risks to the extent therein stated. Losses were sustained, and the British company attempted to recover them from its Russian reinsurer. The demand having met with a refusal, the cause of action was assigned to the plaintiff, a domestic corporation. The defendant, which has appeared generally, admits that it is engaged in business in New York, but urges as a defense that its corporate life was ended by a decree of the Russian Soviet government nationalizing the business of insurance companies in Russia; that, by the same decree, the companies were released from the payment of debts and liabilities; that Great Britain has recognized the existence of the Russian Soviet government, and by a trade agreement set forth in the answer has confirmed the confiscation of the debts owing to its nationals; that all these things were done before the transfer to the plaintiff; and that the plaintiff, taking no greater rights than its assignor, is seeking to enforce a right of action which at the time of the assignment had already been extinguished. The defendant moved that the plaintiff be directed to reply to its defenses, and the Appellate Division, refusing that relief, has certified questions which require us to determine whether the defenses, variously pleaded, are sufficient on their face.

[1] We deal first with the so-called defense that the corporation which defends is dead and so incapable of defending. Martyne v. American Union Fire Ins. Co., 246 N. Y. 183, 190, 110 N. E. 502;Sturges v. Vanderbilt, 73 N. Y. 384. This is obviously not a ‘defense’ at all, if the word defense is employed as one of art, with a proper legal meaning. A corporation with vitality sufficient to answer a complaint has, by the very terms of the hypothesis, vitality sufficient to permit it to be sued. The shades of dead defendants do not appear and plead. Expedients, of course, there are whereby a court may be informed that jurisdiction has been halted. If the corporation is defunct, those in charge of its assets may place upon the record a suggestion of its death, may stay the progress of the suit, and may even vacate the process that assumes to bring it into court. Nankivel v. Omsk All Russian Government, 237 N. Y. 150,142 N. E. 596; Martyne v. Am. Union Fire Ins. Co., supra. Such are not the expedients that by the questions now certified to us we are asked to approve or to condemn. But if we put the questions to one side and view the statements of the answer, verified by the defendant's officers, as a suggestion of its death; to be heeded even in this court, lest a controversy with an unreal litigant be unwittingly determined, the result will not be changed.

[2] The decree of the Russian Soviet government nationalizing its insurance companies has no effect in the United States unless, it may be, to such extent as justice and public policy require that effect be given. We so held in Sokoloff v. National City Bank, 239 N. Y. 158 ,145 N. E. 917. Justice and public policy do not require that the defendant now before us shall be pronounced immune from suit. In the circumstances exhibited by this record, we find it profitless to consider whether the decree was intended to put the nationalized companies out of existence altogether, or, on the other hand, to preserve them as corporate entities though in the ownership of the government. Russian Commercial & Industrial Bank v. Comptoir D'Escompte de Mulhouse, House of Lords, 40 T. L. R. 837. Our concern is not so much with the consequences intended by the authors of the decree as with those that will be permitted in other jurisdictions where the intentions of its authors are without effect as law. The defendant has complied with the provisions of our statutes prescribing the conditions in which foreign insurance companies may do business within our borders. Insurance Law, §§ 27, 28; Consol. Laws, c. 28. It has put itself for many purposes in the same category as our own domestic corporations. Comey v. United Surety Co., 217 N. Y. 268, 274,111 N. E. 832, Ann. Cas. 1917E, 424. Far from suspending its activities since the promulgation of the decree which is said to have ended its existence, it has since then written policies of insurance covering millions of dollars of risks, has collected premiums in large amounts and by the admissions of its answer, is doing business to-day. If the Russian government had been recognized by the United States as a government do jure, there might be need, even then, to consider whether a defendant so circumstanced, continuing to exercise its corporate powers under the license of our laws, would be heard to assert its extinction in avoidance of a suit. Ct. Thompson on Corporations, § 6569; 2 Morawetz, Private Corporations (2d Ed.) § 1003; 37 Harvard Law Review, 610.

In the existing situation, the refinements of learning that envelop and to some extent obscure the definition of de facto corporations are foreign to our inquiry. So long, at least, as the decree of the Russian government is denied recognition as an utterance of sovereignty, the problem before us is governed, not by any technical rules, but by the largest considerations of public policy and justice. MacLeod v. U. S. 229 U. S. 416, 428, 429, 33 S. Ct. 955, 57 L. Ed. 1260. When regard is had to these, the answer is not doubtful. The defendant asks us to declare its death as a means to the nullification of its debts and the...