Grand Lodge, K.P., v. Shorter

• Decision Date: 31 January 1929
• Docket Number: 6 Div. 208.
• Citation: 219 Ala. 293,122 So. 36
• Parties: GRAND LODGE, K. P., ET AL. v. SHORTER ET AL.
• Court: Alabama Supreme Court

122 So. 36

219 Ala. 293

GRAND LODGE, K. P., ET AL. v. SHORTER ET AL.

6 Div. 208.

Supreme Court of Alabama

January 31, 1929

As Modified, on Denial of Rehearing, May 2, 1929.

Appeal from Circuit Court, Jefferson County; William M. Walker Judge.

Bill in equity for preservation and administration of an express trust by Phillip Shorter and others against the Grand Lodge Knights of Pythias of Alabama, under the jurisdiction of the Supreme Lodge Knights of Pythias of North America, South America, Europe, Asia, Africa, and Australia, with a petition for intervention by the Knights of Pythias of North America etc. From a decree for complainants, respondent appeals, and petitioner applies for writ of mandamus. Reversed and remanded; mandamus denied.

Foster and Gardner, JJ., dissenting in part.

E. A Brown, Fort, Beddow & Ray, G. Ernest Jones, Hugh A. Locke, and Forney Johnston, all of Birmingham, for appellants.

Altman & Koenig, of Birmingham, and Inzer, Inzer & Davis, of Gadsden, for appellees.

FOSTER J.

The bill in equity was filed in this case by Phillip Shorter and about fourteen others as complainants against Grand Lodge Knights of Pythias of Alabama as respondent. The respondent is a corporation organized under the laws of Alabama, and is a fraternal benevolent society for colored people.

The bill alleges: That the respondent has an endowment or insurance department and issues to its members endowment policies. That to support the endowment department, each member of a subordinate lodge must pay each month one dollar, of which a part goes to a mortuary fund, and the remainder to the expense fund of the endowment department. That on, to wit, December 31, 1926, there was in force, to wit, 15,313 policies, issued, and it represented insurance aggregating $3,688,000 in force. That these figures have largely increased since that time. That each of the complainants own and hold one such policy of insurance. That the endowment department of defendant is managed by a board of endowment. This board is elected by and is an agency of defendant. The constitution provides that the funds of this department shall not be used for any purpose but payment of death claims and incidental expenses of the department. The bill then alleges that the officers and agents of defendant have been guilty of negligence, misappropriation, graft, fraud, gross mismanagement, reckless extravagance, and waste in administering the funds of this department, which has resulted in depleting the mortuary fund, and will result in entirely wasting and destroying the fund. That it is necessary to preserve such fund from destruction. That over the protests and warning of the superintendent of insurance of Alabama the endowment board has made so-called loans from the mortuary fund to the Grand Lodge for the expenses of the lodge, until such amount has reached the sum of $54,709.88 (at the time of the hearing it was $57,219.63). This is unsecured in any manner. The bill then recites a catalogue of fraudulent transactions alleged to have occurred by the members of this board, consisting of real estate deals, and other investments of moneys of the mortuary fund, in which such members personally profited at the expense of such fund to the extent of some $40,000, or more, which are alleged to have been a fraud upon such fund. The details of each transaction are alleged in the bill. The officers and agents of the defendant who it is alleged committed all such wrongs are now in control of the entire business of the defendant, including said mortuary fund. The bill attributes the mismanagement and misuse of the funds to the negligence and bad faith of said officers and agents of defendant.

By an amendment it was alleged: That an effort was made to bring to the attention of the Grand Lodge meeting of defendant the complaints mentioned, but that said lodge meeting was under the control of the officers committing the wrongs, and that they could get no redress there. That the Alabama superintendent of insurance made protest of the manner in which the fund was depleted by a written communication and report of an actuary. This notice directed that no further sums be transferred from the mortuary fund for use for any other than mortuary purposes. The letter was a severe arraignment of the management of this fund, causing its depletion. That regardless of such protest the practice continued consistently, and there was another communication from the superintendent of insurance calling attention to a continuance of the extravagance and misuse of the endowment fund. The bill as so amended prayed that the mortuary fund be preserved and protected, and for the appointment of a receiver of the endowment department to operate the same, and keep its effects and affairs separate from the fraternal department until it can with safety to the members and policyholders be turned back to the operation and control of respondent.

The corporation itself (the Grand Lodge) is the only party respondent. No accounting is sought against the derelict officers.

Defendant on the same day, filed demurrer to the bill as to its merits and pleas to the jurisdiction of the subject-matter united with pleas to the jurisdiction of the person of defendant, and moved to quash the service of summons because it was not executed on the superintendent of insurance, and subsequently filed an amendment of the demurrers on the merits. If Code 1923, § 8474, had been complied with by appellant (there is no allegation to that effect), whether that section provides the only method of service in all forms of action brought either in accordance with the article of the Code of which it is a part, or in actions not mentioned in the Code, and whether section 9421 is another method of service applicable to actions not provided for in said article of the Code, it is not necessary here to decide, because the motion to quash service was waived by the pleading on the merits. Hart v. Turk, 15 Ala. 675; Holley v. Younge, 27 Ala. 203; Woodruff v. Hundley, 127 Ala. 640, 656, 29 So. 98, 85 Am. St. Rep. 145; Strouse v. Leipf, 101 Ala. 433, 14 So. 667, 23 L. R. A. 622, 46 Am. St. Rep. 122; Steele v. Booker, 205 Ala. 210, 87 So. 208; Ex parte Dunlap, 209 Ala. 453, 96 So. 441; 1 C.J. 268.

In various ways objection was made to the bill because it was not filed on behalf of all the policyholders and because the derelict officers were not made parties; that the Attorney General could only file the bill; that no sufficient effort was made through the organization to correct the wrongs; that the bill is solely to appoint a receiver, which is only an ancillary remedy; and that the bill has no independent equity in connection with which the receivership is sought. The court overruled all the foregoing objections to the bill, and appellant assigns as error the decree in this respect.

We cannot agree with appellant in its interpretation of the nature and purpose of the bill. It is not a bill to dissolve the corporation and wind up its affairs. It does not seek a receiver of all the affairs and business of the corporation, as was the case in Albach v. Fraternal Aid Union, 100 Kan. 511, 164 P. 1065; Baird v. Modern Samaritan, 162 Minn. 274, 202 N.W. 498; Cummings v. Supreme Council of Royal Arcanum (D. C.) 247 F. 992. It does not seek an accounting against the officers and agents of the corporation for their misconduct. But it is filed on the theory that the corporation as such is by its constitution and by-laws made an express trustee of the endowment fund created for the protection of the policyholders as a trust fund; that such trustee acting through its officers and agents has depleted and mismanaged the fund; that the officers have made individual gain in connection with its investments; and that a court of equity will interfere with the operations of the trustee under such circumstances, and take charge of and administer the trust. Complainants are beneficiaries of this trust fund, and have a direct interest in seeing that its integrity is maintained, that its proper status is restored, and that it is properly managed. They do not file this suit in a representative capacity. It is an individual suit. It may be assimilated to a suit by a taxpayer to prevent a city from wasting public funds. Though it may result in benefit to others, the purpose is to protect the rights of complainants. Gillespie v. Gibbs, 147 Ala. 449, 41 So. 868; Inge v. Board,

135 Ala. 187, 53 So. 678, 93 Am. St. Rep. 20; N. O. M. & C. R. R. Co. v. Dunn, 51 Ala. 128.

This situation is readily distinguishable from one wherein funds are sought to be distributed or property divided among its owners, as where a corporation is sought to be dissolved. In such instance all the interested parties should be duly represented, or made parties. Such was the situation in Ala. Fidelity Mortgage & Bond Co. v. Dubberly, 198 Ala. 545, 73 So. 911, and McKleroy v. Gadsden, 126 Ala. 184, 28 So. 660, and Noble v. Gadsden, 133 Ala. 250, 31 So. 856, 91 Am. St. Rep. 27, cited by appellant. Complainant may maintain this suit without the other beneficiaries, though the others will share in the benefits of it. Section 10450 of the Code expressly so provides.

It is also claimed that the derelict officers and agents of defendant are necessary parties. We do not concur in that view and think the contention results from a failure fully to consider the nature and purpose of the bill. The corporation is the trustee, and the fact that certain parties were acting for it is but a fortuitous circumstance. Complainants expect the corporation to administer the trust properly, and failing to do so, it is responsible and is the only necessary party defendant in a suit to administer the trust. On the same...