Loyal Protective Life Ins. Co. v. Massachusetts Indem. & Life Ins. Co.

• Decision Date: 18 September 1972
• Citation: 287 N.E.2d 412,362 Mass. 484
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: LOYAL PROTECTIVE LIFE INSURANCE COMPANY et al. v. MASSACHUSETTS INDEMNITY AND LIFE INSURANCE COMPANY et al. 1

Page 412

287 N.E.2d 412

362 Mass. 484

LOYAL PROTECTIVE LIFE INSURANCE COMPANY et al. v. MASSACHUSETTS INDEMNITY AND LIFE INSURANCE COMPANY et al.

¹

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Jan. 4, 1972.

Decided Sept. 18, 1972.

Robert J. Condlin, Asst. Atty. Gen. (Walter H. Mayo, III, Asst. Atty. Gen., with him), for the Attorney General.

Edward B. Hanify, Boston (John M. Harrington, Jr., Roger Allan Moore, Robert F. Hayes, and John S. Hopkins, III, Boston, with him), for Loyal Protective Life Ins. Co. and another.

Charles C. Cabot, Boston (Philip G. Koening, Boston, with him), for Massachusetts Indemnity and Life Ins. Co.

John M. Hall, Boston (Robert S. Frank, Jr., Boston, with him), for Pennsylvania Life Co.

Richard L. Medverd, Boston (Myer L. Orlov, Boston, with him), for interveners, Thomas J. McHugh and others.

Before TAURO, C.J., and QUIRICO, BRAUCHER, and HENNESSEY, JJ.

QUIRICO, Justice.

By this bill in equity 'for injunction and related relief' pursuant to G.L. c. 175, § 193M, inserted by St.1970, c. 484, § 4 (hereinafter § 193M), Loyal Protective Life Insurance Company (Loyal) sought in part to enjoin the acquisition of its stock pursuant to a tender offer, extended over the signature of the defendant Massachusetts Indemnity and Life Insurance Company (Mass. Indemnity) with the participation of the defendants Pennsylvania Life Company (Penn. Life), The First National Bank of Boston (Bank) and Smith, Barney and Co. Incorporated (Smith, Barney), a broker-dealer in securities. The Attorney General, acting at the request of the Commissioner of Insurance (Commissioner), was permitted to intervene as a party plaintiff under § 193M(g). In addition, forty-seven stockholders of Loyal were permitted to intervene over objection by Loyal.

Loyal and the Attorney General Appeal from a final decree of the Superior Court to the effect that the tender offer in question did not violate the provisions of § 193M. Their appeals are before us on a full transcript of the evidence and a report of material facts. Consequently, 'it is our duty to examine the evidence . . . and decide . . . (the) issues according to our judgment as to the facts and the law, giving due weight to the findings of the judge which will not be reversed unless plainly wrong.' BIANCHI V. RETIREMENT BD. OF SOMERVILLE, MASS., 270 N.E.2D 792,^A and cases cited.

The subsidiary facts, as found by the trial judge, are not in dispute and we summarize them. Loyal and Mass. Indemnity are stock insurance corporations organized and existing under the laws of this Commonwealth. Both are principally engaged in the sale of non-cancellable health insurance. Penn. Life, a Delaware corporation with its usual place of business and its executive offices in Santa Monica, California, is a holding company owning a controlling interest in several subsidiary companies, some of which are insurance companies writing disability, income protection, health and life insurance. In January, 1969, Penn. Life, acting through one of its wholly owned subsidiaries, Mayflower, Inc. (Mayflower), acquired 99.8% of the stock of Mass. Indemnity and this stock is still held by Mayflower.

In 1969 and 1970, officers of Penn. Life and Mass. Indemnity discussed the possibility of acquiring control of Loyal. On October 5, 1970, a meeting was held in New York attended by the president of Mass. Indemnity, three individuals who were directors of both Mass. Indemnity and Penn. Life, and two representatives of Smith, Barney. The Smith, Barney representatives advised the group that two blocks of voting stock of Loyal, totaling 100,000 shares, were available for purchase. There was discussion of the subject of acquiring these shares, and also of the acquisition of all of the outstanding shares of Loyal. It was tentatively decided to acquire the two blocks aggregating 100,000 shares and to finance the purchase by having Penn. Life borrow the requisite funds and relend them to Mass. Indemnity at the same rate of interest Penn. Life had to pay. It was also tentatively decided to make a tender offer for the remainder of Loyal's outstanding shares at the price of $42 a share; to have Smith, Barney act as dealer-manager of the tender offer; and to select the Bank as tender agent.

On October 9, 1970, Mass. Indemnity acquired in its name the 100,000 shares of Loyal. This purchase was financed by means of a loan from Penn. Life to Mass. Indemnity in the amount of $4,400,000. On the same date the executive committee of Penn. Life approved the plan to have Mass. Indemnity make a public tender offer for Loyal's remaining shares and to have Penn. Life borrow the necessary funds from the Bank of America. Moreover, on the same date of October 9, 1970, the board of directors of Mass. Indemnity voted to authorize its executive committee and officers to take such action as might be necessary or desirable to acquire any amount up to all of Loyal's stock and to borrow the funds necessary for the acquisition.

On October 12, 1970, the board of directors of Penn. Life by a written consent to action without a directors' meeting: (1) approved the 'proposed' action of Mass. Indemnity to purchase shares of Loyal from individual holders of certain blocks and to extend a tender offer for all remaining shares; (2) authorized Penn. Life to borrow up to $22,000,000 from Bank of America; (3) empowered the officers of Penn. Life to effect such pledges of the stock, including the stock of Loyal, as might be required by said bank; (4) authorized the officers of Penn. Life to lend Mass. Indemnity up to $22,000,000 so that Mass. Indemnity would have funds to acquire the shares of Loyal; and (5) authorized the officers of Penn. Life to set the terms of the loan to Mass. Indemnity, including: (a) an interest rate not to exceed that payable by Penn. Life, (b) a term not to exceed the term of the loan to Penn. Life and, (c) in the officers' discretion, security consisting of the shares of Loyal acquired by Mass. Indemnity together with a right reserved to Penn. Life to repledge such shares as security for the loan for it from Bank of America. On the same date, October 12, 1970, Penn. Life had arranged a commitment with the Bank of America for loans aggregating $22,000,000 for the purpose of acquiring shares of Loyal.

On October 14, 15 and 16, 1970, an advertisement announcing the tender offer was published in several newspapers. The offer was in the name of Mass. Indemnity, was addressed to the stockholders of Loyal and stated that Mass. Indemnity 'hereby offers to purchase all of the capital stock ($10 par value) of Loyal Protective Life Insurance Company' at a price of $42 a share subject to the terms and conditions set forth in the offer. On October 19, 1970, Loyal entered this bill to enjoin the acquisition of its shares pursuant to the tender offer.

1. The primary issue raised by these appeals is whether the defendants or any of them, prior to acquiring the first group of 100,000 shares of Loyal, and prior to extending the public tender offer to purchase all remaining shares of Loyal, were required to file with the Commissioner and with Loyal a statement under § 193M(a), which provides in pertinent part that: 'No person other than . . . a domestic insurer shall make a tender offer for . . . or acquire . . . any voting stock of a domestic insurer . . . if, after the consummation thereof, such person would directly or indirectly be in control of such insurer . . . unless, at the time any such offer . . . is made . . . such person has filed with the commissioner and has sent to such insurer a statement containing the information required by this section and such offer . . . has been approved by the commissioner . . .' (emphasis added).

It is undisputed that none of the defendants filed such a statement. The trial judge ruled that the 'domestic insurer' exception embodied in the language '(n)o person other than . . . a domestic insurer', appearing in the first sentence of § 193M(a), operated to exempt from the filing requirements of that section both the initial acquisition of Loyal's stock and the subsequent tender offer to acquire all remaining stock. This ruling was based upon the judge's ultimate conclusion that: 'The tender offer was made in the name of Mass. Indemnity alone. Only Mass. Indemnity is the person acquiring the tendered shares of Loyal.'

However, the judge also specifically found that the initial moves for the acquisition of Loyal stock by Mass. Indemnity came from officials of Penn. Life, and not from Mass. Indemnity. Further, he also found 'that Penn. Life was an active participant with Mass. Indemnity in the formulation of a plan to have Mass. Indemnity acquire all of the outstanding shares of Loyal and in the execution of that plan. Penn. Life did not merely approve arrangements made by Mass. Indemnity to acquire the shares. It collaborated with Mass. Indemnity at every stage of the undertaking. It was the dominant party in carrying out the project that in actuality was jointly undertaken by both companies.'

The 'domestic insurer' exception appearing in § 193M(a) expressly provides that '(n)o person other than . . . a domestic insurer' (emphasis added) shall attempt to acquire control of another domestic insurer without complying with the filing and approval requirements of § 193M. General Laws, c. 175, § 193L (hereinafter § 193L), inserted by St.1970, c. 484, § 4, provides in part that: 'As used in sections . . . (193M and 193N) the following words shall, unless the context requires otherwise have the following meanings: . . . 'Person', an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity or any combination of the foregoing acting in concert, but does not include a securites broker performing no more than the usual and customary broker's function' (emphasis added).

We hold, contrary to...