In re Manufacturing Lumbermen's Underwriters, 14270.

• Decision Date: 30 December 1936
• Docket Number: No. 14270.,14270.
• Parties: In re MANUFACTURING LUMBERMEN'S UNDERWRITERS.
• Court: U.S. District Court — Western District of Missouri

18 F. Supp. 114

In re MANUFACTURING LUMBERMEN'S UNDERWRITERS.

No. 14270.

District Court, W. D. Missouri, W. D.

December 30, 1936.

Scott Timmons, of Carrollton, Mo., and William Allen and Charles M. Howell, Jr., both of Kansas City, Mo., for petitioner C. L. Gray Lumber Co. and other subscribers at Manufacturing Lumbermen's Underwriters.

A. J. Granoff, of Kansas City, Mo., for receiver.

Charles M. Blackmar (of Meservey, Michaels, Blackmar, Newkirk & Eager), of Kansas City, Mo., for petitioning creditors.

Harry L. Jacobs (of Ringolsky, Boatright & Jacobs) and Terence O'Brien, both of Kansas City, Mo., for Superintendent of Insurance of State of Missouri.

OTIS, District Judge.

On December 1, 1936, at 4:50 p. m., there was filed with the clerk of this court a voluntary petition in bankruptcy on behalf of Manufacturing Lumbermen's Underwriters (described, in the style of the petition, as "Manufacturing Lumbermen's Underwriters, a Reciprocal Exchange"). Immediately thereafter there was prepared by the clerk (or more accurately, by one of his deputies) and filed an order reciting that:

"At Kansas City, in said District, on the 1st day of December, A. D. 1936, before the Honorable Merrill E. Otis, Judge of said Court in Bankruptcy, the petition of Manufacturing Lumbermen's Underwriters, a Reciprocal Exchange of Kansas City, Jackson County, Missouri, that it be adjudged a bankrupt, within the true intent and meaning of the Acts of Congress relating to bankruptcy, having been heard and duly considered, the said Manufacturing Lumbermen's Underwriters, a Reciprocal Exchange is hereby declared and adjudged a bankrupt accordingly.

"It is Therefore Ordered, That upon the petition filed in this court by or against said bankrupt on the 1st day of December, A. D. 1936, said matter be referred to Fred S. Hudson, one of the Referees in Bankruptcy of this court, to take such further proceedings therein as are required by said Acts; and that the said Manufacturing Lumbermen's Underwriters, a Reciprocal Exchange, shall attend before said Referee on the ______ day of ______ at Kansas City and thenceforth shall submit to such orders as may be made by said Referee or by this Court relating to said bankruptcy.

"Witness the Honorable Merrill E. Otis, Judge of the said court, and the seal thereof, at Kansas City in said District, on the 1st day of December, A. D. 1936.

"A. L. Arnold, Clerk "By M. C. Hawkins, Deputy Clerk."

Notwithstanding the recitals of this order, judicial notice is taken of the fact (and it is found to be a fact) that the voluntary petition referred to in the first paragraph hereof and in the order set out above never was submitted to the judge of the court, it never was heard or considered by the judge, nor was any order made by the judge declaring and adjudging the petitioner a bankrupt. The so-called order of adjudication and reference, as has been stated, was made by a deputy clerk.¹ Shortly afterward the referee in bankruptcy made an order appointing a receiver for the bankrupt, that order having been made, as it appears, ex parte and without notice to any.

The superintendent of insurance for the state of Missouri had taken over the affairs of the Manufacturing Lumbermen's Underwriters at a date earlier than the filing of the petition in bankruptcy. Subsequent to the filing of the petition in bankruptcy and appointment of a receiver by the referee in bankruptcy, counsel for the superintendent of insurance, having discovered the orders that had been made in this court and by the referee, filed a motion to set aside the order of adjudication and reference. Thereafter various subscribers of Manufacturing Lumbermen's Underwriters filed a motion of a similar character. These motions have been argued and submitted and are now to be ruled.

1. That one of the questions raised by the motions which has been most elaborately argued is whether the Manufacturing Lumbermen's Underwriters is such an entity as may be adjudicated a bankrupt. The motions raise, however, certain questions touching the authority for the filing of the petition, which should be considered and disposed of before consideration is given to the question just stated.

The petition purports to be filed on behalf of "Manufacturing Lumbermen's Underwriters, a Reciprocal Exchange" (described also in the petition as sometimes being known as "Subscribers at Manufacturing Lumbermen's Underwriters"), by Rankin-Benedict Underwriting Company, "Its duly authorized attorney in fact." It is alleged in the motions, first, that the authority of Rankin-Benedict Underwriting Company as attorney in fact for Manufacturing Lumbermen's Underwriters did not include authority to file a voluntary petition in bankruptcy, and, second, that before the petition in bankruptcy was filed, Rankin-Benedict Underwriting Company had been removed as attorney in fact by Manufacturing Lumbermen's Underwriters. These are the two matters which first must be disposed of before consideration is given to the greater question as to whether such an entity as we have here may ever be adjudicated a bankrupt under the bankruptcy statute.

Manufacturing Lumbermen's Underwriters is one of those comparatively modern developments commonly spoken of as "reciprocal insurance exchanges." Originally they were relatively simple in nature and theory. A group of men insured each other in a plan in which the liability of each was limited and in which each was represented by an attorney in fact who transacted the business details made necessary by the plan and received in compensation a certain part of the assessments levied against the subscribers to the plan. This germ idea grew and developed. Other types of insurance came to be written than the original inter-insurance. Finally (and this is true of Manufacturing Lumbermen's Underwriters) the activities carried on by the attorney in fact came very closely to resemble those of stock insurance companies and of mutual insurance companies. While, however, this evolution may have resulted in an entity of a different character than that which existed at the beginning, the powers of the attorney in fact essentially are of the same character as they always have been. They are set out in a written power of attorney executed, not by the Manufacturing Lumbermen's Underwriters as a separate entity, but by each subscriber. The attorney in fact has no powers except such as are conferred upon hm by the power of attorney. The full text of the power of attorney is set out in the margin.²

A study of the power of attorney discloses at once that Manufacturing Lumbermen's Underwriters is not the principal who has appointed an attorney in fact. Each subscriber of Manufacturing Lumbermen's Underwriters has appointed Rankin-Benedict Underwriting Company as his attorney in fact. No power of attorney has been jointly executed by all of the subscribers. The power of attorney which each subscriber has executed does not purport to (and could not, of course) confer upon the attorney in fact authority to do anything on behalf of any other subscriber or on behalf of all subscribers. Obviously no subscriber could empower an attorney in fact to do for him what he could not do for himself and no subscriber, under this power of attorney, undertakes to do anything of that character. Herein is disclosed the most convincing reason for the conclusion that the attorney in fact had not the power to do what it attempted by the filing of this petition in bankruptcy. Empowered by individuals to act for each of them in their relations with other individuals (also subscribers), the attorney in fact was not empowered and could not have been empowered to act for an entity distinct and separate from the subscribers. If A authorizes X to contract, in his name and on his behalf as an attorney in fact, with B and C, if B separately authorizes X to so contract with A and C, if C similarly authorizes X to contract with A and B, certainly the power of X is limited to representation by him separately of A and B and C and not of A, B, and C as a group or entity, distinct from the individuals composing it.

When at the oral argument of these motions learned counsel for Rankin-Benedict Underwriting Company, claiming to be the attorney in fact for Manufacturing Lumbermen's Underwriters, was asked to point to the precise language in the power of attorney which empowered the attorney in fact to file a petition in bankruptcy, he replied by saying that the authority was found in that part of paragraph 2 of the power of attorney, which reads as follows:

"2. * * * the undersigned as a subscriber * * * hereby appoints Rankin-Benedict Underwriting Company * * * attorney in fact for us and in our name, place and stead, to exchange indemnity with * * * other subscribers; to accept and make binding upon us applications from such subscribers for the exchange of such indemnity; to make, issue, subscribe, deliver, amend, modify, change, reinsure and cancel contracts therefor * * *; * * * to adjust, settle and pay all losses and claims under any such contract; * * * to appear for us in any suit, action or legal proceedings, and to institute, prosecute, defend, compromise or settle any suit, action or other legal proceeding or any claim that may arise out of any such contract; to do any and all things which in the judgment of said attorney may be necessary and proper for the protection of our interests in regard to any such contracts; and to do or perform any other or different acts that we ourselves could do in relation to any contract herein authorized."

Expressing his thought more fully than by a mere reference to the language quoted from the power of attorney, learned counsel argued that, since the attorney in fact was empowered to "defend any suit, action or other legal proceeding or any claim that may arise out of any such contract (and) to do any and all things which in the judgment of said attorney in fact...