Hilgeman v. NATIONAL INSURANCE COMPANY OF AMERICA, 30707.

• Decision Date: 16 June 1971
• Docket Number: No. 30707.,30707.
• Citation: 444 F.2d 446
• Parties: Edward W. HILGEMAN, on behalf of himself and all other purchasers of "Security Charter Contracts" issued and sold by National Insurance Company of America, Plaintiff-Appellant, v. NATIONAL INSURANCE COMPANY OF AMERICA, etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

444 F.2d 446 (1971)

Edward W. HILGEMAN, on behalf of himself and all other purchasers of "Security Charter Contracts" issued and sold by National Insurance Company of America, Plaintiff-Appellant, v. NATIONAL INSURANCE COMPANY OF AMERICA, etc., et al., Defendants-Appellees.

No. 30707.

United States Court of Appeals, Fifth Circuit.

June 16, 1971.

F. Don Siegal, J. Vernon Patrick, Jr., Howard P. Walthall, Birmingham, Ala., for plaintiff-appellant; Berkowitz, Lefkovits & Patrick, Birmingham, Ala., of counsel.

Alan W. Heldman, Birmingham, Ala., for defendants-appellees; Deramus, Johnston, Barton, Proctor & Swedlaw, Birmingham, Ala., of counsel.

William M. Acker, Jr., A. Lamar Reid, George R. Stuart, III, Birmingham, Ala., for amicus curiae, State Security Life Ins. Co.; Smyer, White, Reid & Acker, Birmingham, Ala., of counsel.

Before JOHN R. BROWN, Chief Judge and COLEMAN and CLARK, Circuit Judges.

CLARK, Circuit Judge:

Edward W. Hilgeman, plaintiff-appellant, filed a complaint based upon Section 22 of the Securities Act of 1933¹ and Section 27 of the Securities Exchange Act of 1934² for himself and purportedly on behalf of approximately one thousand persons who bought a Security Charter Contract from the National Insurance Company of America (NICOA), a North Dakota corporation. The instrument was purchased in 1963 while Hilgeman was a resident of the State of Washington. Subsequently Hilgeman moved to Alabama, where the instant suit was filed.

Hilgeman's complaint alleged: (1) that the Security Charter Contracts sold by NICOA to Hilgeman and others were "securities" as defined by, and therefore subject to, the Securities Act of 1933 and the Securities Exchange Act of 1934; (2) that Hilgeman and the others were defrauded and damaged by NICOA's misrepresentation of material facts and omissions to disclose material facts in connection with the offering and sale of the securities³; and, (3) that the contract sold to Hilgeman was required to be registered with the Securities Exchange Commission under the 1933 Act, but was not registered prior to being offered and sold to Hilgeman and his class.⁴

In addition to NICOA, Hilgeman joined as defendants Empire Life Insurance Company (Empire), an Alabama Company, which became the controlling stockholder of NICOA in 1965; Wesley Sando, who allegedly controlled NICOA; and Shearn Moody, who allegedly controlled both NICOA and Empire. Sando and Moody were served at their residences by United States Marshals in North Dakota and Texas, respectively. The two corporate defendants were not served pursuant to the process provisions of the federal securities law,⁵ but rather by substituted service upon the Alabama Superintendent of Insurance pursuant to state law.⁶ For such service to be possible, the case must be one "arising out of" contracts of insurance.

NICOA made a special appearance at which time it made motions to quash the process served on it and to dismiss on the ground that the United States District Court for the Northern District of Alabama lacked venue jurisdiction over it and on the ground of the insufficiency of the service of process. Specifically, NICOA alleged that it was a resident of North Dakota; and had never qualified to do business in Alabama, maintained an agent, or actually done business in Alabama. Moreover, the policy had been sold to Hilgeman in Washington; all the sales material had been exhibited to him there; and, all transactions had been conducted there. NICOA contends that there was a complete absence of even minimum contacts with Alabama necessary to support service of process on or personal jurisdiction over it.

Shearn Moody appeared specially and made the same motions on grounds identical to those advanced by NICOA. Additionally, he denied Hilgeman's allegation that he controlled NICOA and Empire at all relevant times. He asserted that Empire did not acquire control of NICOA until some two years after Hilgeman purchased the instant policy from NICOA. Similarly, Empire appeared specially and made the same motions on the same grounds as asserted by NICOA and Moody. Wesley Sando moved to dismiss on the grounds that the district court lacked personal jurisdiction.

Subsequent to these motions, the district court issued a memorandum opinion which analyzed the Court's subject matter jurisdiction. The trial judge concluded from Hilgeman's complaint and affidavits and an examination of a specimen copy of the Security Charter Contract that...