McGarry v. Lentz

• Decision Date: 04 May 1926
• Docket Number: No. 4625.,4625.
• Citation: 13 F.2d 51
• Parties: McGARRY et al. v. LENTZ et al.
• Court: U.S. Court of Appeals — Sixth Circuit

13 F.2d 51 (1926)

McGARRY et al. v. LENTZ et al.

No. 4625.

Circuit Court of Appeals, Sixth Circuit.

May 4, 1926.

A. I. Vorys and Smith W. Bennett, both of Columbus, Ohio (Bennett, Westfall & Bennett and Vorys, Sater, Seymour & Pease, all of Columbus, Ohio, on the brief), for appellants.

Henry A. Williams, of Columbus, Ohio (J. D. Karns and B. W. Gearheart, both of Columbus, Ohio, on the brief), for appellees.

Before DENISON and MOORMAN, Circuit Judges, and HICKENLOOPER, District Judge.

HICKENLOOPER, District Judge.

The appellants, complainants below, were members of and policy holders in the American Insurance Union, a fraternal benefit society incorporated under the laws of the state of Ohio, and as such filed their bill in equity in the court below against the corporation and the individuals constituting its National Board of Directors, praying for an injunction restraining the defendants from proceeding with the purchase of land and the erection thereon of a 30-story building, claimed to be solely for investment purposes, and therefore an act of the corporation in contravention of the law of Ohio. The bill also contains a prayer for an accounting as between the individual defendants and the corporation of such sums as shall be found to have been already so wrongfully expended.

To this bill of complaint the defendants answered, admitting the alleged purpose of the American Insurance Union to invest a large sum of money in the erection of a building in Columbus, Ohio, and further averring that "section 9487 of the General Code of Ohio, which is a part of the general legislation relating to fraternal benefit societies in the state of Ohio, provides that `no application for injunction against or proceedings for the dissolution of or the appointment of a receiver for any such domestic society or branch thereof shall be entertained by any court in this state unless the same is made by the Attorney General.'" The answer also contains an averment that "said section was in full force and effect at the time plaintiff became a member of the defendant American Insurance Union and has been in full force and effect continuously and at all times since."

Motion was made by the appellants in the court below to strike the above-quoted passages, and others, from the answer, which motion was overruled, and, the facts so alleged in the answer being admitted, and being held by the court to constitute a complete defense, the bill was dismissed. Appeal is prosecuted from this judgment.

This section 9487 of the General Code of Ohio is decisive of the present issue, if its provisions are applicable to affect rights asserted in the federal courts of equity. This in turn is dependent upon whether the intended purpose and effect of the enactment are to define the jurisdiction of courts "in this state" (a phrase which would include the federal courts in Ohio, Merko v. Sturm Co., 233 F. 68, 147 C. C. A. 138 C. C. A. 6), or are merely regulatory of corporations created under its laws. Obviously, no state Legislature can regulate, limit, or control the jurisdiction of the federal courts, nor can the laws of any state preclude resort to the federal courts, nor confer exclusive jurisdiction upon a designated state court, in a class of cases of which the federal courts of equity have theretofore been accustomed to assume jurisdiction. Waterman v. Canal-Louisiana Bank Co., 215 U. S. 33, 43, 30 S. Ct. 10, 54 L. Ed. 80; Chicot County v. Sherwood, 148 U. S. 529, 534, 13 S. Ct. 695, 37 L. Ed. 546; Hyde v. Stone, 20 How. 170, 175, 15 L. Ed. 874. See, also, Terral v. Burke Constr. Co., 257 U. S. 529, 42 S. Ct. 188, 66 L. Ed. 352, 21 A. L. R. 186.

On the other hand, that the state had the power to regulate the method of government, and to prescribe or limit the right of members to participate in the control, of a corporation of its own creation, cannot be doubted. The corporation being the mere creature of the law to which it owes its existence, it has very early been held "to be capable of exerting its faculties only in the manner in which that act authorizes." Head v. Providence Ins. Co., 2 Cranch, 127, 167, 2 L. Ed. 229. When the state has exercised this power of regulation prior to the time that an individual becomes a member of the society or corporation, the statutory provisions also become a part of the contract of membership and are controlling in the definition of the rights of the members. Rundel v. Life Ass'n of Am. (C. C.) 10 F. 720; Brown v. Equitable Life Assur. Soc. (C. C.) 142 F. 835; Relfe v. Rundle, 103 U. S. 222, 226, 26 L. Ed. 337; Cummings v. Supreme Council, Royal Arcanum (D. C.) 247 F. 992. See, also, Royal Arcanum v. Green, 237 U. S. 531, 35 S. Ct. 724, 59 L. Ed. 1089, L. R. A. 1916A, 771.

In construing section 9487 of the General Code of Ohio for the purpose of determining whether it is in fact merely regulatory, and thus contractually binding upon appellants, or an attempt upon the part of the state to regulate the jurisdiction of the federal courts, as courts "in this state," and as such wholly ineffective, it is helpful to consider the precise nature of such fraternal benefit societies and the necessity for such legislation and the evils which it was adapted to avoid.

In addition to their ritualistic and lodge form of organization, practically all such societies have many of the features of life, accident, and health insurance companies. In the aggregate the membership of these organizations is...