McCarter v. Firemen's Ins. Co.

• Decision Date: 14 June 1909
• Citation: 73 A. 80,74 N.J.E. 372
• Parties: MCCARTER, Atty. Gen v. FIREMEN'S INS. CO. et al.
• Court: New Jersey Supreme Court

73 A. 80

74 N.J.E. 372

MCCARTER, Atty. Gen

v. FIREMEN'S INS. CO. et al.

New Jersey Court of Errors and Appeals.

June 14, 1909.

(Syllabus by the Court.)

On rehearing. Decree of Court of Chancery (70 N. J. Eq. 291, 61 Atl. 705) reversed, and cause remitted.

For former opinion in Court of Errors and Appeals, see 66 Atl. 398.

The decree of the Court of Chancery dismissed an information filed by the Attorney General against 8 domestic fire insurance companies and 113 foreign fire insurance companies, praying for a decree adjudging a certain agreement in writing, entered into by the defendants, to be void as an ultra vires act injurious to the public, and that the said companies be enjoined from continuing to act under such agreement.

The contract in question, which was annexed to the bill, and occupies 22 closely printed pages, constitutes the subscribing companies members of "The Newark Fire Insurance Exchange," and covers apparently every detail necessary to vest in such Exchange the fixing of the premium rates to be charged for insurance by the constituent companies, and to render it, as far as possible, impracticable to obtain fire insurance within the area covered by the Exchange otherwise than from its constituent companies, and upon the rates fixed by it. The area thus covered includes the city of Newark, and certain outlying and adjacent districts in Essex and Hudson counties. The salient features of this contract pertinent to this appeal are (1) that the premium rates to be charged by the constituent companies shall be fixed by a central association, through an executive committee of five of its members, such central association being composed of a single representative of each constituent company, and such executive committee including uniformly one member representing all of the domestic companies; (2) that no member of the Exchange shall write policies at any other rate than that fixed by the Exchange; (3) that the only brokers to whom members of the Exchange shall pay brokerage for business obtained through them shall be those holding a broker's certificate from the Exchange in order to obtain which such broker must pledge himself not to place any insurance with any insurance company that is not a member of the Exchange unless, after giving preference to the members of the Exchange, sufficient Insurance cannot be obtained. Upon receipt of a broker's certificate the broker must agree in writing to observe the rules of the Exchange that forbid rebating, and "to act only as the agent of the assured in placing contracts for insurance."

The information charged that this contract rendered it practically impossible to obtain fire insurance within the covered territory save from the companies that had subscribed to such contract, and at the premium rates fixed in accordance with its terms, and that the rates so fixed are 60 per cent. higher than the rates that prevailed in the same territory prior to the making of this contract, and that now prevail in the immediately adjacent territory not covered by the contract. The relief prayed by the information was that the defendants be enjoined from continuing or doing any act under said contract that tended to fix the rates to be charged for fire insurance, or to prescribe the persons through whom insurance may be placed, or the mode of payment therefor.

A mass of testimony substantiating on the one hand the averments of the information, and justifying on the other hand the propriety of the rates fixed and the methods employed by the Exchange, was taken, and the case thus made brought to final hearing before the Vice Chancellor, who advised that the information be dismissed, not because its charges and averments had not been proven, but because, assuming that they had been proved, the contract in question, while one that a court of equity would not aid a party to such contract in enforcing against another party to it, was not one that a court of equity, at the instance of the state, would restrain the defendants from entering into or continuing to the public injury. Precisely what was decided is thus abstracted in the headnotes to the Vice Chancellor's opinion: (1) "The common law does not treat agreements in restraint of trade as being illegal in the ordinary sense of the word, but merely as being unenforceable. (2) In the absence of a statute authorizing it the Attorney General may not maintain a suit to enjoin insurers against carrying out an agreement regulating rates, though against public policy, as in restraint of trade, and the fact that the insurers are corporations makes no difference."

Upon the ground thus stated the information of the Attorney General was dismissed, and from the decree to that effect this appeal was taken, and argued, after which a reargument was ordered and had covering certain further matters upon which the court desired to hear the views of counsel.

Robert H. McCarter. Atty. Gen., and Malcolm MacLear, for appellant.

Rennet Van Syckel and Richard V. Lindabury, for respondents.

GARRISON, J. (after stating the facts as above). The learned Vice Chancellor, who advised that the information filed by the Attorney General be dismissed on the ground that the Court of Chancery could not give relief in such a suit, said at the conclusion of his opinion: "If these corporations were public or quasi public bodies, and if the Attorney General were here asking to enjoin them from doing ultra vires acts to the public injury, as in Attorney General v. Central Railroad Company, 50 N. J. Eq. 52, 24 Atl. 904, 17 L. R. A. 97, the case would be different."

We agree with the learned Vice Chancellor as to the class of corporations and of corporate acts to which the rule of Attorney General v. Central Railroad Company, applies but we do not agree with him that the defendants are not within such class. The pertinent language of Chancellor McGill in Attorney General v. Central Railroad Company is: "Where a corporate excess of power tends to the public injury, or to defeat public policy, it may be restrained in equity at the suit of the Attorney General." The case of Attorney General v. Central Railroad Company, which did not itself come to this court, has since its decision by Chancellor McGill in 1892 been followed in the Court of Chancery, and has been approved and acted upon by this court notably in the recent case of Attorney General v. Vineland Light & Power Co. (N. J.) 70 Atl. 177, where the decree that was affirmed had been advised by Vice Chancellor Learning (65 Atl. 1041), as to this point, upon the express authority of Attorney General v. Central Railroad Co.

In the case of Attorney General v. American Tobacco Company, 55 N. J. Eq. 352, 36 Atl. 971, Vice Chancellor Reed said: "It may be conceded that if this corporation had entered into an agreement with other manufacturers of these goods, whether those manufacturers were individuals or corporations, by which agreement prices were to be fixed and competition paralyzed, such an agreement would be a subject of equitable cognizance. Such was the case of Stockton, Attorney General, v. Central Railroad Company, 50 N. J. Eq. 52, 24 Atl. 964, 17 L. R. A. 97." This opinion was adopted by this court.

In Attorney General v. Del. & B. B. R. R. Co., 27 N. J. Eq. 631, Mr. Justice Dixon, speaking for this court, said: "In equity as in the law court the Attorney General has the right, in cases where the property of the sovereign or the interests of the public are directly concerned, to institute suit by what may be called civil information for their protection."

Prof. Pomeroy (section 1093) states the rule thus: "When the managing body are doing, or about to do, an ultra vires act of such a nature as to produce public mischief, the Attorney General as the representative of the people and of the government may maintain an equitable suit for preventive relief."

In England the same rule prevails. Attorney General v. Cockermouth Local Board, L. R., 18 Eq. Cas. 172; Attorney General v. Shrewsbury Bridge Co., L. R. 21 Ch. Div. 752; Attorney General v. London & N. W. Ry. Co., 1 Q. B. Div. 78.

The rule of the American courts to the same effect as that laid down by Chancellor McGill is epitomized in 20 Am. & Eng. Ency. 850, under the title "Monopolies and Trusts," where numerous cases are cited in the notes. A complete collection of such cases will also be found in the two volumes of Lewson's Monopoly and Trade Restraint Cases, which work is, in effect, a collection of the syllabi of the opinions delivered by American courts upon this topic.

The rule illustrated by all of these cases, and the one that we should adopt, if we have not already done so, is that if a corporation, engaged in a business that is affected with a public interest, contracts to enter upon a line of conduct in respect to such business that tends to affect such public interest injuriously, and is contrary to public policy, such contract is ultra vires such corporation, and may be restrained in equity at the suit of the Attorney General, without regard to whether or not actual injury has resulted to the public. The expression "corporation affected with a public interest" is to be preferred to the term "quasi public corporation" as tending, in some measure at least, to characterize the class of corporations indicated, whereas the term "quasi public" is characterized only by its unmeaning vagueness. In the discussion, and still more in the application of this rule it will of course be necessary to amplify the expression "affected with a public interest" to the extent of stating just what is meant by that term, and also to discriminate between acts that are ultra vires a corporation and those that are merely illegal, and also to make clear what "tends" to public injury, for it is upon the concurrence of these three factors that the applicability of the rule in question depends.

Upon this branch of the present inquiry, therefore, the...