Lion Bonding & Sur. Co. v. Karatz

• Decision Date: 28 April 1922
• Docket Number: 5902.
• Citation: 280 F. 532
• Parties: LION BONDING & SURETY CO. v. KARATZ.
• Court: U.S. Court of Appeals — Eighth Circuit

280 F. 532

LION BONDING & SURETY CO. v. KARATZ.

No. 5902.

United States Court of Appeals, Eighth Circuit.

April 28, 1922

Halleck F. Rose, of Omaha, Neb. (Amos Thomas and George W. Pratt both of Omaha, Neb., and Clarence A. Davis, Atty. Gen. of Nebraska, on the brief), for appellant.

Bruce W. Sanborn, of St. Paul, Minn. (Sanborn, Graves & Ordway, of St. Paul, Minn., on the brief), for appellee.

Before STONE, Circuit Judge, and TRIEBER and MUNGER, District Judges.

TRIEBER District Judge.

The facts as they appear from the record in the case are:

On May 2, 1921, the appellee filed his complaint in equity in the District Court of the United States for the District of Minnesota, on behalf of himself and all other parties similarly situated, who may desire to make themselves parties, against the appellant, in which it was charged that appellee is a citizen of the state of Minnesota, and appellant an insurance corporation organized under the laws of the state of Nebraska, admitted to do business in the state of Minnesota; that in pursuance to such authority it has written a large amount of liability insurance, and has outstanding in the state policies and obligations as surety exceeding $100,000; that in payment of a loss in the state of Minnesota, for which it became liable in the sum of $2,100 to one of its policy holders, a corporation created under the laws of the state of Minnesota it gave, on April 19, 1921, a draft in the city of St. Paul Minn., drawn by its duly authorized agent, on the home office of appellant in the city of Omaha, state of Nebraska, for said sum, which said draft became, by proper indorsement, in due course of business, for a valuable consideration, the property of appellee; that said draft was duly presented to appellant for payment and refused, for the reason that appellant did not have sufficient funds to pay the same. The appellant has a large amount of personal property in the state of Minnesota, of the value of at least $20,000; that it has liabilities amounting to the sum of $377,790, which it is unable to pay, and has been denied the right to continue to do business in the states of Minnesota and Nebraska; that it is insolvent, and there is great danger of the property being wasted and dissipated by litigation ensuing and about to ensue upon the large amount of unpaid claims owing; that various creditors are threatening to sue the company, and collect their claims by executions, attachments, or other legal proceedings, unless the court will take its property into its custody and appoint receivers, for the purpose of converting its assets into money and distributing the same among its creditors; that the object of the action is for the purpose of closing up its business and causing a just and fair distribution of its property among its creditors; that appellant's property, asked to be taken control of by the court, greatly exceeds in value the sum of $3,000, exclusive of interest and costs.

The prayer of the bill is to appoint a receiver of appellant's property, with the usual powers of a receiver, and an injunction, but does not ask that affairs of the corporation be wound up, or that it be dissolved. The complaint was duly verified. Upon presentation of the complaint, the court, on May 2, 1921, granted the prayer of the complaint, appointed receivers, and authorized the plaintiff to apply to any other District Court for ancillary proceedings. The receivers duly qualified. On May 14, 1921, appellant filed a motion to dismiss the complaint, upon two grounds. (1) That plaintiff's claim was only for $2,100 and therefore insufficient to give the court jurisdiction. (2) That plaintiff is only a simple contract creditor on a claim not reduced to judgment, and without having exhausted his remedy at law.

It also filed, at the same time, a motion to discharge the receivers and for a restoration of the property to its custody, or the custody of the Department of Trade and Commerce of the state of Nebraska. The Department has not intervened in the cause and has presented no claim. The grounds relied on in this motion are that the court was without jurisdiction, for the same reasons set out in the motion to dismiss the complaint, and the additional ground that the defendant is an insurance company, existing under the laws of that state, and the Governor, through the agency of the Department of Trade and Commerce, is vested with power to regulate, supervise, and control the business of insurance, and the corporations engaged in it; that said Department of Trade and Commerce is charged with the duty of examining all insurance companies, and if necessary for the protection of the policy holders to apply to the district court of the county in which the company has its principal office for an order directing the company to show cause why the Department should not take possession of the property, etc., and conduct or close its business, and upon such application the district court is vested with power to decree forthwith that said Department take possession of said property and retain possession thereof until, after a hearing, the court finds that the cause of such order has been removed, and on like application the court may order the liquidation of the business of such company, dissolve it, and enjoin it from transacting business or disposing of the property; that before appellee filed his complaint in this action, viz. on April 12, 1921, in judicial proceedings had in the district court of Douglas county, state of Nebraska, wherein the Department of Trade and Commerce was plaintiff and the appellant herein defendant, that court entered an order directing the Department to take possession of appellant's property, and conduct its business until such time as it shall appear, after a hearing, that the cause of said order had been removed, and also enjoining the company from in any manner interfering with the conduct of the business by the Department, and the usual injunctive orders made in such cases; that pursuant to said order the Department took immediate possession of the assets, books, etc., of the company for the purpose set out in the order and decree of the district court of Douglas county, and has been conducting the business ever since. A transcript of the proceedings in the state district court is filed with the motions as an exhibit. From this exhibit it appears that the allegations in the motion are true. The prayer of the complaint of the Department in that cause is:

'Wherefore this plaintiff, the Department of Trade and Commerce of the state of Nebraska, prays that this court direct the Department of Trade and Commerce to take possession of the property, records, and effects and conduct the business of the defendant corporation, the Lion Bonding & Surety Company, and retain such possession and conduct the business until such time as, after a hearing, it shall appear to the court that the cause of the order directing the Department of Trade and Commerce to take possession has been removed, and that the company can properly resume possession of its property, records, and effects and the conduct of its business, and further prays that an order may issue forthwith from this court, directing the defendant the Lion Bonding & Surety Company to show cause why the Department of Trade and Commerce should not take possession of its property, records, and effects, and conduct its business, and further prays that, pending the return of such order to show cause and a hearing thereon this court may issue an order restraining the defendant the Lion Bonding & Surety Company from the transaction of its business, and from the disposition of any of its property, records, and effects until the further order of this court, and for such other and further relief as may to the court seem just and equitable under the circumstances.' It also shows, in an itemized report filed in the state district court, and which is a part of the exhibit filed in this cause, that the company is wholly insolvent, and that its liabilities, in addition to the loss of the $300,000 capital stock, exceed its assets by $377,790.68.

On May 30, 1921, after a hearing, the motion of appellant to dismiss the complaint and to vacate the appointment of the receivers made on May 2, 1921, was by the court denied, and from this order this appeal is prosecuted under section 129 of the Judicial Code (Comp. St. Sec. 1121).

Prior to the hearing on May 30, 1921, on the 14th day of May, 1921, the appellant presented to this court, which was then in session at St. Paul, a motion under section 56 of the Judicial Code (Comp. St. Sec. 1038) to disapprove the order appointing the receivers, which motion was heard by the court, composed at the time of the lamented Circuit Judge Hook, Judge Neblett, and the writer of this opinion. The grounds on which this motion was based were in effect the same as those set out in the assignment of errors on this appeal. The court denied the motion on May 31, 1921, all the judges concurring.

The assignments of error are:

I. 'The court erred in making and entering the order appointing receivers of the property of the Lion Bonding & Surety Company upon the application and bill of complaint of complainant, in that the bill of complaint showed on its face that the said court was without jurisdiction of the subject-matter of said suit, because the sum or amount in controversy therein is limited to $2,100, and does not equal or exceed, exclusive of interest and costs, the sum or amount of $3,000.'

II. 'The court erred in making and entering the order appointing receivers of the property of the Lion Bonding &amp Surety Company, in that the bill of complaint of complainant showed on its face that the court was without power...