McGarry v. Lentz

• Decision Date: 28 November 1925
• Docket Number: No. 333.,333.
• Citation: 9 F.2d 680
• Parties: McGARRY v. LENTZ et al.
• Court: U.S. District Court — Southern District of Ohio

9 F.2d 680 (1925)

McGARRY v. LENTZ et al.

No. 333.

District Court, S. D. Ohio, E. D.

November 28, 1925.

Vorys, Sater, Seymour & Pease and Smith Bennett, all of Columbus, Ohio, for plaintiff.

Williams, Sinks & Williams and B. W. Gearheart, all of Columbus, Ohio, for defendants.

HOUGH, District Judge.

The complainant filed his bill of complaint against American Insurance Union and the members of its board of directors or trustees, designated in its constitution and by-laws as "the National Board of Directors," praying for an injunction, cancellation of building contracts, and an accounting.

James McGarry filed an intervening petition against the same defendants asking similar relief, and in addition thereto the appointment of a receiver for American Insurance Union.

The defendant American Insurance Union is a fraternal insurance company, organized and having its corporate existence under and by virtue of the laws of the state of Ohio.

The complainant and intervener are citizens of the state of Illinois, and make averments in their respective pleadings to base their right to sue upon the ground of diversity of citizenship, each being a policy or certificate holder in the defendant insurance company.

The complainant in his bill, and the intervener in his intervening bill, each sue in his own name and on behalf of all those similarly situated as policy or certificate holders.

It is averred: That the corporation is without capital stock, and was organized and is carried on solely for the mutual benefit of its members and their beneficiaries, and not for profit, and that it has been in business ever since the 21st day of September, 1894, engaged in and carrying on the business of the fraternal benefit society, with its office and the seat of its business in the city of Columbus, in the Southern district of Ohio. That it operates under and has adopted a constitution and by-laws providing, among other things, for the creation of funds derived from assessment of its members. It is also provided that its funds may be invested by "purchasing and holding real estate such as is requisite for immediate accommodation in the transaction of its business," and for such other purposes therein provided. Provision is also made for the creation of a certain board, known as "the National Board of Directors," to which is consigned the control and management of the business affairs, property, and funds of the society as follows: "Said boards shall also invest the funds of the society as it may deem for the best interests of the society and consistent with the statutes governing the investment of such funds." That a fund of something over $2,500,000 has been accumulated, now constituting a trust fund for the benefit and security of policy or certificate holders. Against this fund there is chargeable more than $1,500,000 as a valuation reserve on standing policies and certificates of insurance. And that other liabilities are chargeable against the fund, making an aggregate of more than $2,000,000 so chargeable.

It is further averred that the defendant insurance corporation, through its national board of directors, have acquired two 8 story office buildings located upon East Broad street in the city of Columbus, and has further purchased premises on West Broad street in said city, a tract of ground 187½ feet square, known as "Platt Quarter Square," and upon said tract have begun the construction and erection of a 30-story building, substantial space in which has been set aside and let for a hotel and theater purposes; the latter project to cost exceeding $5,000,000.

It is averred that the diversion of the insurance funds and the hypothecating of the credit of the insurance association to these building projects is contrary to the regulatory laws of the state of Ohio, the constitution and by-laws, rules, and regulations of the insurance association, and is in violation of the rights of the complaining parties as policy and certificate holders.

To the complaint and intervening complaint, joint answers of the defendants have been filed, and to these answers the plaintiff and intervener, respectively, filed their motions to strike affirmative matter.

Among other things set out in the answers and moved to be stricken therefrom, is the following:

Defendants further state "that section 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. Said section was in full force and effect at the time plaintiff (and intervener) became a member of the defendant American Insurance Union, and has been in full force and effect continuously and at all times since."

The above-quoted matter contains the exact language of section 9487 of the General Code of Ohio, which is one of the sections of an act relating to fraternal associations.

Counsel representing the two nonresidents, seeking equity in this court, contend that the case is brought under the broad equity jurisdiction of the court and under the equity rules promulgated by the Supreme Court of the United States, which have the force and effect of law in the premises, and that the allegations in respect to diversity of citizenship fortifies their position and procures to them the right to invoke that jurisdiction.

The defendants, on the other hand, claim that the statute of the state furnishes a complete and exclusive remedy, effectually barring the right to the relief asked and the remedy sought, that this is a class or representative suit, and that the remedy is invoked, not in the nature of an exclusive personal right, but...