Irwin v. Missouri Valley Bridge & Iron Co.

• Decision Date: 25 May 1927
• Docket Number: No. 3757.,3757.
• Citation: 19 F.2d 300
• Parties: IRWIN et al. v. MISSOURI VALLEY BRIDGE & IRON CO.
• Court: U.S. Court of Appeals — Seventh Circuit

19 F.2d 300 (1927)

IRWIN et al. v. MISSOURI VALLEY BRIDGE & IRON CO.

No. 3757.

Circuit Court of Appeals, Seventh Circuit.

April 12, 1927.

Rehearing Denied May 25, 1927.

Kemper K. Knapp, John R. Cochran, and Leonard F. Martin, all of Chicago, Ill., and Frank E. Tyler, of Kansas City, Mo., Joseph A. O'Donnell, Joseph D. O'Donnell, and James W. Burke, all of Chicago, Ill., for appellants.

Fred B. Silsbee, of Chicago, Ill., for appellee.

Before EVANS, PAGE, and ANDERSON, Circuit Judges.

EVAN A. EVANS, Circuit Judge.

This appeal is from a decree continuing a receiver of "Subscribers at Associated Employers' Reciprocal," and directing him to "liquidate their affairs and assets under the name of Associated Employers' Reciprocal, Subscribers at Associated Employers' Reciprocal, or any similar or other name, whether or not such assets have heretofore been held or controlled by an attorney in fact or receiver," and directing the receiver "to collect from subscribers all unpaid premiums, etc., including the assessment herein levied," directing the receiver to "maintain offices" and employ help to carry out the task of liquidating the affairs of said reciprocal," ascertaining the amount of the claims, and collecting the assessments in order that such claims may be paid.

The complaint is unusually long, and sets forth in detail the history of the Associated Employers' Reciprocal, hereinafter called the Reciprocal, organized under the laws of Illinois, the business of which was conducted through an Illinois corporation, Sherman & Ellis, Inc., as attorney in fact for its members. This Reciprocal, when this suit was instituted, had some 10,000 members. Its business was similar to that of an insurance company that wrote casualty insurance covering employers' and automobile risks. Each member appointed Sherman & Ellis, Inc., its or his attorney in fact, who, in the name of the Reciprocal, issued to the member a policy of insurance of the class sought. In the course of time, as the business grew, the problem of settling losses and making assessments became more complicated and involved. The difficulties increased when either the Reciprocal or the attorney in fact began suits. The decisions are numerous that deal with the entity character of the Reciprocal, how it might sue or be sued, etc.

The confused and unsettled state of the law is illustrated by the following decisions: Sergeant v. Goldsmith Dry Goods Co., 110 Tex. 482, 221 S. W. 259, 10 A. L. R. 742; Warfield-Pratt-Howell Co., 233 Ill. 487, 84 N. E. 706; Blanchard v. Hamblin, 162 Mo. App. 242, 144 S. W. 880; Wallace & Co. v. Ferguson, 70 Or. 307, 140 P. 742, 141 P. 542; Elliott v. Belt Automobile Indemnity Association, 87 Fla. 545, 100 So. 797; U. S. Shipping Board v. Sherman & Ellis, Inc., 208 Ala. 83, 93 So. 834; Sherman & Ellis, Inc., v. Indianapolis Castings Co., 195 Ind. 370, 144 N. E. 17; John L. Walker v. National Underwriter Co. (C. C. A.) 3 F.(2d) 102; Thomas Canning Co. v. Canners' Exchange Subscribers at Warner Insurance Bureau, 219 Mich. 214, 189 N. W. 214; Lewelling v. Manufacturing Wood Workers' Underwriters, 140 Ark. 124, 215 S. W. 258; Lee Blakemore, Inc., v. Lewelling (C. C. A.) 281 F. 952; Mountain Timber Co. v. Manufacturing Wood Workers Underwriters, 98 Wash. 167, 167 P. 93; State v. Alley, 96 Miss. 720, 51 So. 467; Standard Auto Insurance Association v. Henson, 201 Ky. 230, 256 S. W. 414; Mazeika v. Automobile Underwriters of America, 226 Ill. App. 239; Devenny v. Automobile Owners' Inter Insurance Association, 124 Wash. 453, 214 P. 833; Indiana Manufacturers' Reciprocal Association v. Holmes, 79 Ind. App. 85, 137 N. E. 337; Artificial Ice Co. v. Reciprocal Exchange, 192 Iowa, 1133, 184 N. W. 756; Nolan v. Illinois Auto. Insurance Exchange, 219 Ill. App. 531; Turner v. Henshaw (Ind. App.) 155 N. E. 223. Numerous other decisions, not reported, have been called to our attention, and they too only serve to stress the difficulties incident to the operation of a Reciprocal by the attorney in fact.

In 1924 these difficulties had so multiplied, and the Reciprocal's affairs become so seriously involved, that the insurance commissioners of the states of Illinois, Missouri, Kansas, Kentucky, Michigan, Texas, and Oklahoma investigated its affairs and the conduct of its business by Sherman & Ellis, Inc. The result was the withdrawal of Sherman & Ellis, Inc., as attorney in fact, and the substitution of Irwin. The situation was not cleared much. An effort was made to have the Reciprocal adjudged a bankrupt, but the District Court held that it was not subject to adjudication as a bankrupt. After working on the problem for some months, Irwin concluded that a court of equity was the best, and probably the only, place where the funds of the members could be lawfully distributed and the claims of claimants judicially fixed and determined. He therefore caused the present suit to be instituted, or at least encouraged its bringing.

When the bill was filed, he appeared and consented to the appointment of the receiver, and also filed an answer specifically admitting nearly all of the allegations of the bill. Among other things he said in this answer:

"And this defendant further admits that in the absence of funds in the hands of said attorney in fact with which to liquidate claims arising under said respective insurance contracts, the complainant, as well as all other claimants, should or are compelled to ask the relief of a court of equity to determine the respective rights and liabilities of the members of said class and the rights to the said funds in the hands of said attorney in fact and to come to the hands of said attorney in fact or otherwise collected.

"And this defendant, further answering, admits that it is impracticable, if not impossible, in suits at law for it to recover from the obligees upon its contracts of insurance the sum due and to become due thereon, and that there is no practical remedy other than in a court of equity to ascertain who the persons obligated by their respective insurance contract to the complainant and others and to ascertain the amount for which each may be liable or to determine the proportion and amount for which the complainant is liable to others, as alleged in paragraph 11 of said bill of complaint, and further admits that for the complainant to enforce its rights for contribution against all the members of said class would result in a multiplicity of suits and subject the complainant to be sued or involved in litigation by numerous other subscribers having like or similar claims of the defendant, as alleged in said bill of complaint."

Some months later when the receivers had partially completed their task, defendants Irwin and Sherman & Ellis, Inc., appeared, the latter through an attempted intervention and Irwin through an amended answer, and both sought to avoid the consequences of the action previously taken and to question the court's jurisdiction as well as the fact justification for the appointment.

The errors assigned may be considered under two heads: (A) The federal court has no jurisdiction of the cause. (B) The facts do not justify the appointment of a receiver. None of the other named defendants answered, save Wittenmeirer Machinery Company, which company defaulted on the hearing. No appellant herein made objection to the proceeding in the District Court, or saved any exception to any rulings, save appellants Irwin, and Sherman & Ellis, Inc.

(A) Respecting the federal court's jurisdiction, it appears that plaintiff, a Kansas corporation, sued for itself and all others similarly situated. It alleged that it was a member of the Reciprocal and had a valid unpaid claim past due in excess of $3,000. It described the defendant's class character and citizen status as follows:

"The Missouri Valley Bridge & Iron Company, a corporation, brings this bill against W. T. Irwin, Sherman & Ellis, Inc., a corporation, Frank H. Ellis, and against the following persons individually and as representatives of a class of persons who have exchanged contracts of indemnity and insurance with each other and one another upon the plan of reciprocal insurance at the office of Sherman & Ellis, Inc., by individual, several commitments effected by agreement and through an attorney in fact, Hudrox Company, a corporation, Roberts & Schaefer Company, a corporation, D. M. Goodwillie Company, James B. Clow & Sons, a corporation, Polonia Coal Company, a corporation, Heco Envelope Company, a corporation, Kennedy Furniture Company, a corporation, Lake Zurich Dairy Company, a corporation, and Henry Landgraf.

"Complainant respectfully shows:

"(1) That the Missouri Valley Bridge & Iron Company is a corporation organized and existing under the laws of the state of Kansas and is a citizen of the state of Kansas and of no other state; the Hydrox Company, Roberts & Schaefer Company, D. M. Goodwillie Company, James B. Clow & Sons, Wittenmeirer Machinery Company, Polonia Coal Company, Heco Envelope Company, Kennedy Furniture Company, Lake Zurich Dairy Company, and each of them, are corporations organized and existing under the laws of the state of Illinois, and each of said companies is a citizen of the state of Illinois and of no other state, and each said company has its principal office and place of business in the city of Chicago in said state; W. T. Irwin is a citizen of the state of Illinois, and resides in the city of Peoria in said state; Sherman & Ellis, Inc., is a corporation organized and existing under the laws of the state of Delaware, and has its principal office and place of business in the city of Chicago and state of Illinois; Frank H. Ellis is a citizen of the state of Illinois and resides in the city of Chicago in said state; Henry Landgraf is a citizen of the state of Illinois and resides in the city of Chicago in said state."

The facts bring the case squarely within the holding of Supreme Tribe of Ben Hur v. Cauble, 255...