Hoile v. Unity Life Ins. Co.

• Decision Date: 18 May 1943
• Docket Number: No. 5055.,5055.
• Citation: 136 F.2d 133
• Parties: HOILE et al. v. UNITY LIFE INS. CO. (ROWLEY et al., Intervenor).
• Court: U.S. Court of Appeals — Fourth Circuit

136 F.2d 133 (1943)

HOILE et al. v. UNITY LIFE INS. CO. (ROWLEY et al., Intervenor).

No. 5055.

Circuit Court of Appeals, Fourth Circuit.

May 18, 1943.

C. S. Bowen, of Greenville, S. C. (Robert L. Ballentine, of Anderson, S. C., and W. E. Bowen, of Greenville, S. C., on the brief), for appellants.

Thomas B. Whaley and R. K. Wise, both of Columbia, S. C. (Wise & Whaley and Fred D. Townsend, all of Columbia, S. C., on the brief), for appellees.

Before SOPER, DOBIE and NORTHCOTT, Circuit Judges.

SOPER, Circuit Judge.

This appeal was taken from an order of the District Court whereby a plea to the jurisdiction was sustained and a creditors' petition for the reorganization of Unity Life Insurance Company, a South Carolina corporation, under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., was dismissed. The theory of the creditors is that the debtor is a business, moneyed and commercial corporation entitled to reorganization under the terms of the Act; but the District Judge held that the debtor is not subject to reorganization in this way, because it is either a fraternal benefit company, and as such, not a moneyed, business or commercial corporation within the meaning of the Act, or it is an insurance company, and as such, expressly excluded from the terms of the Act. See 11 U.S. C.A. §§ 22, 506, 526.

The petition contains the following allegations as to the nature of the corporate business:

"Nature of Corporate Business.

"That the said Unity Life Insurance Company was organized and chartered by the State of South Carolina on or about the 12th day of October, 1934, under the Fraternal Benefit Association Chapter of the South Carolina Code of 1932, embracing sections 8030 to 8072 thereof, both inclusive, and not under the insurance laws of said State, and is a fraternal benefit association, without capital stock and not operating for benefit, but for the mutual protection, relief and benefit of its members and their families, having a representative form of government, and incidentally, but not as its main purpose, issuing benefit certificates over the lives of its members, payable to said members, their families or designated beneficiaries.

"The nature of said company's business can be further explained by reference to Section 8030 of the Code aforesaid under which it was incorporated and with which it conformed, and which reads as follows:

"`Any corporation, society, order or voluntary association without a capital stock, organized and carried on solely for the mutual benefit of its members and their beneficiaries, and not for profit, by a lodge system with ritualistic form of work and a representative form of government, and which may make provision for the payment of benefits, in accordance with section 8034, is hereby declared to be a fraternal benefit association.'

"Additional light on the nature of the company's business is given by the application upon which its charter was issued, the pertinent portion thereof being as follows:

"`The object and purpose of the corporation are to form a Fraternal Benefit Company, without capital stock, to be organized and carried on for the mutual benefit of its members and not for profit, and having a ritualistic form of work and representative form of government, and to make provision for the payment of benefits in accordance with the laws governing fraternal benefit companies. * * *

"`Other objects of this Company are to unite in bonds of fraternalism and benevolence, all acceptable persons of a good moral character and sound bodily health and who believe in the existence of a Supreme Being, to educate and improve the members, morally, socially and intellectually and to furnish insurance protection and benefits upon the lives of such of its members as may be entitled thereto, under the laws, rules and regulations of the Company. * * *'"

Other allegations of the petition show substantially the following facts: The assets of the debtor amount to $171,455.44 and the liabilities to $309,412.57, which include $139,470 in reserves, required to be held to secure the payment of certain benefit certificates. The debtor has more than three thousand members with benefit certificates insuring the members against death, accident and dismemberment, in the sum of approximately $2,400,000. For the last eleven months of the calendar year 1941, dues and premiums collected from the members amounted to $77,657.53 against $15,799.78 in death claims, and $6,764.59 in cash surrender values paid out during the period; and during said period the debtor received an income on investments of $7,138.12. As the result of the financial condition of the corporation and of certain irregularities in the management of its affairs, a receiver was appointed in the Court of Common Pleas for Richland County, South Carolina; and various questions were raised which were considered on appeal by the Supreme Court of South Carolina wherein the corporation was treated and classed as a fraternal benefit association under the laws of the State, and it was pointed out that such associations are not subject to the laws governing insurance companies except those that are made especially applicable. See Powell v. Gary, 200 S.C. 154, 20 S.E.2d 391; Ex parte Rowley et al., 200 S.C. 174, 20 S.E.2d 383; Morris v. Unity Life Ins. Co., 200 S.C. 166, 20 S.E.2d 388.

This recital of facts clearly shows the alternative perceived by the District Judge that the corporation debtor was either a fraternal benefit association or an insurance company, and requires the conclusion that in either aspect it is not subject to reorganization under the Bankruptcy Act. Considering first the status of the corporation as a fraternal benefit association and the power of the court to subject it to reorganization in an involuntary proceeding, we must apply § 106 of the Bankruptcy Act as added by the Act of June 22, 1938, Ch. 575, § 1, 52 Stat. 883, 11 U.S.C.A. § 506. This section defines a corporation for the purpose of Chapter X as a corporation which could be adjudged a bankrupt under the Act. Section 1 of the Act of June 22,...