Gillis v. Keystone Mut. Casualty Co.

• Decision Date: 18 February 1949
• Docket Number: No. 10772.,10772.
• Citation: 172 F.2d 826,11 ALR 2d 455
• Parties: GILLIS et al. v. KEYSTONE MUT. CASUALTY CO.
• Court: U.S. Court of Appeals — Sixth Circuit

11 ALR 2d 455, 172 F.2d 826 (1949)

GILLIS et al. v. KEYSTONE MUT. CASUALTY CO.

No. 10772.

United States Court of Appeals Sixth Circuit.

February 18, 1949.

J. A. Edge, of Lexington, Ky. (Lena Maiden Craig, of Lexington, Ky., on the brief), for appellants.

No appearance for appellees.

Before SIMONS, McALLISTER, and MILLER, Circuit Judges.

McALLISTER, Circuit Judge.

Appellants filed complaint against the Keystone Mutual Casualty Company and its officers for recovery of damages, alleging that fraudulent representations were made to appellants in the sale of certain insurance policies to them, that the financial condition of the insurance company was misrepresented, and that upon such fraudulent misrepresentations, appellants purchased insurance policies on which they may be contingently liable for assessment as members of a mutual insurance company. They asked that the suit proceed not only on behalf of the appellants but on behalf of all of the policyholders of the company who desired to appear, contribute to the costs, and receive the benefits thereof; that all persons be enjoined from instituting or prosecuting suits or proceedings against any of the policyholders of the company in the State of Kentucky except by appearing in the proceedings commenced by appellants; and they further ask judgment against the insurance company to the end that all the policies issued be cancelled, that they be awarded damages for breach of contract and cancellation of their policies in the sum of $5,000 and for the further sum of $1,582.20, the amount of the unearned premium received by the appellee company upon the policies which appellants purchased and for $200,000 for premiums paid on policies in the State of Kentucky. Appellants further asked that a receiver be appointed with all the usual powers of receivers and that he be directed to investigate all suits pending against the insurance company or against persons where judgments rendered would become liabilities of the company; that be be given authority to intervene in said causes; that all persons having claims against the insurance company be required to file their claims against the receiver; and that he be given authority and direction to proceed forthwith to collect all sums of money due the insurance company. The complaint concluded with the usual prayer that all further decrees might issue from time to time as would effectuate the purpose of the receivership and result in a final settlement of the business of the insurance company.

Service of summons was accepted by the Director of Insurance of the State of Kentucky and the case was brought on for hearing on notice served upon the Director of Insurance. Upon the hearing, appellants were represented by counsel but no one appeared on behalf of the appellee insurance company. It appeared that at the time of the filing of the bill of complaint, the insurance company, in certain proceedings in the State of Pennsylvania, had admitted its insolvency; that the Insurance Commissioner of the State of Pennsylvania had suspended its license to do business in that state and elsewhere; that the corporation, in accordance with the laws of Pennsylvania, had been dissolved and all of its affairs were in the hands of the Liquidation Division of the Insurance Department of that state, which had issued notices to all persons having claims to file them and had given notice of the court order enjoining and restraining all persons from instituting or prosecuting any action at law or in equity against the dissolved company. For purposes of clarity, appellees will be hereafter referred to as the appellee insurance company. After consideration of the allegations in the complaint, the district court dismissed the case for lack of jurisdiction, and appellants filed their appeal to this court.

The district court did not specifically set forth the grounds upon which it concluded there was lack of jurisdiction. It would seem that there was no question of diversity of citizenship; and that the amount in controversy was sufficient to confer jurisdiction upon the district court. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288, 289, 58 S.Ct. 586, 82 L.Ed. 845.

However, another consideration here controls decision. A federal court, even in the exercise of an equity jurisdiction not otherwise inappropriate, should not appoint a receiver to displace the possession of a state officer lawfully administering property for the benefit of interested parties except where it appears that the procedure afforded by state law is inadequate or that it will not be diligently and honestly U.S. 30, 55 S.Ct. 584, 79 L.Ed. 1282. In followed. Gordon v. Washington, 295 Commonwealth of Pennsylvania v. Williams, 294 U.S. 176, 55 S.Ct. 380, 79 L.Ed. 841, 961 A.L.R. 1166, a shareholder in an insolvent Pennsylvania building and loan association brought a bill of complaint in the federal district court for that state, alleging diversity of citizenship and the requisite jurisdictional amount, and praying for the appointment of receivers to liquidate the business and for an injunction restraining creditors or others from interfering with or taking possession of the property. The statutes of Pennsylvania provided a procedure for the liquidation of such associations under the direction of a Secretary of Banking, and substantially similar to receivership proceedings in the federal courts. It was held that upon the petition of the State of Pennsylvania, the district court should have relinquished its jurisdiction in favor of the state administration of the corporate assets by the state officer. See also Gordon v. Ominsky, 294 U.S. 186, 55 S.Ct. 391, 79 L.Ed. 848; Penn General Casualty Co. v. Commonwealth of Pennsylvania, 294 U.S. 189, 55 S.Ct. 386, 79 L.Ed. 850; Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871; Holley v. General American Life Ins. Co., 8 Cir., 101 F.2d 172. It is settled that when a state court and a court of the United States may each take jurisdiction of a matter, the tribunal whose jurisdiction first attaches holds it to the exclusion of the other until its duty is fully performed and the jurisdiction...