Moscow Fire Ins. Co. v. Bank of New York & Trust Co.

• Decision Date: 11 April 1939
• Citation: 280 N.Y. 286,20 N.E.2d 758
• Parties: MOSCOW FIRE INS. CO. et al. v. BANK OF NEW YORK & TRUST CO. et al. MORRO et al. v. MOSCOW FIRE INS. CO. el al. (UNITED STATES, Intervener).
• Court: New York Court of Appeals Court of Appeals

280 N.Y. 286

20 N.E.2d 758

MOSCOW FIRE INS. CO. et al.

v.BANK OF NEW YORK & TRUST CO. et al.

MORRO et al.

v.MOSCOW FIRE INS. CO. el al. (UNITED STATES, Intervener).

Court of Appeals of New York.

April 11, 1939.

Actions by the Moscow Fire Insurance Company and another against the Bank of New York & Trust Company, as agent or depositary of named plaintiff and others, and by Samuel E. Morro and others against the Moscow Fire Insurance Company and others, to determine distribution of surplus assets of plaintiff insurance company's New York branch, wherein the United States intervened. From judgments of the Appellate Division, 253 App.Div. 644, 3 N.Y.S.2d 653, affirming judgments for plaintiffs and defendants against intervener on a referee's decision, 161 Misc. 903, 294 N.Y.S. 648, intervener appeals.

Affirmed.

RIPPEY, J., CRANE, C. J., and FINCH, J., dissenting. Appeal from Supreme Court, Appellate Division, First department.

Lamar Hardy, U. S. Atty. of New York City (Leon E. Spencer, David E. Hudson, Edward J. Ennis, and David W. Wainhouse, all of New York City, Aaron B. Holman, of Washington, D. C., and Henry Munroe, of Albany, of counsel), for the United States.

Paul C. Whipp and Lounsbury D. Bates, both of New York City, for respondent Paul Lucke.

Borris M. Komar, of New York City, for respondent Samuel E. Morro et al.

Hartwell Cabell, of New York City, for respondents Heckscher & Gottlieb et al.

G. Frank Dougherty, Frederic C. Pitcher, and Douglas M. Amann, all of New York City, for respondents Gerson Jakubovic et al.

Samson Selig, Abraham J. Multer, and William F. Roche, all of New York City, for respondents John S. Sawyer et al.

Thomas Kiernan, of New York City, for respondent Olga I. Hoppe.

Victor R. Kaufmann, of New York City, for Thomas I. Sheridan et al., as receivers of Volga Kama Commercial Bank et al., amici curiae.

Allen W. Dulles, of New York City, for Association of American Creditors of Russia, amicus curiae.

LEHMAN, Judge.

Moscow Fire Insurance Company was organized in 1858 as a joint stock fire insurance company under the laws of the Russian Imperial Government. In 1899 it was authorized to transact business in this State in accordance with the provisions of section 27 of the Insurance Law (Consol. Laws, c. 28). That section provides that ‘no insurance corporation organized and existing under the government or laws of any state or country outside of the United States' shall transact business here unless it ‘shall have securities or other property within the United States, deposited with insurance departments or state officers and held in trust by a trustee or trustees, as hereinafter provided, for the protection of all its policyholders and creditors within the United States * * *.’ The statute fixes the amount of the securities or other property which must be so deposited or held in trust and further provides that ‘for all purposes specified in this chapter, the capital of such a foreign insurance corporation * * * shall be the aggregate value of all securities and other property * * * deposited with insurance departments or state officers and held in trust by a trustee or trustees. * * *’ Moscow Fire Insurance Company complied with all the requirements of the statute and through its branch here transacted insurance business in this State under the supervision of the Superintendent of Insurance. In 1918 when the Soviet government, officially described as the Russian Socialist Federated Republic, successfully seized ruling power in Russia, the company had here large capital and its business was prosperous.

In December, 1918, the Soviet government promulgated a decree ‘declaring all kinds of insurance a state monopoly. * * * All private insurance companies were to be subject to liquidation and became state property.’ Dougherty v. Equitable Life Assur. Society of United States, 266 N.Y. 71, 82, 193 N.E. 897, 900. Other decrees followed by which the existence of all insurance companies in Russia was terminated, their assets in Russia seized, and their business in Russia became part of a government monopoly. Until 1933 the government of the United States did not accord recognition to the Soviet Republic. The decrees of the Soviet government were completely effective in Russia, but until recognition the decrees of the government could not be given here the force and effect of mandates of a lawful sovereign. Insurance corporations, organized under the laws of a Russian government which had ceased to exist, continued to transact business here through local agents with local capital, in accordance with the statutes of this State, though, as we have said in other cases, at their own domicile their existence was terminated and their property confiscated by decree of a ‘governmental establishment which actually governs, which is able to enforce its claims by military force and is obeyed by the people over whom it rules.’ Russian Reinsurance Co. v. Stoddard, 240 N.Y. 149, 158, 147 N.E. 703, 705. Such a corporation was actually and effectively dead in Russia. It was legally dead in countries where the Soviet Republic was recognized, and since recognition ‘is retroactive in effect and validates all the actions and conduct of the government so recognized from the commencement of its existence’ (Oetjen v. Central Leather Co., 246 U.S. 297, 303, 38 S.Ct. 309, 311, 62 L.Ed. 726), belated recognition by the United States might change retroactively a being endowed with life into a corpse. The result is a tangle of juristic rights and obligations which cannot be unravelled by strict logical application of juristic concepts. As we pointed out in Russian Reinsurance Co. v. Stoddard supra, 240 N.Y. pages 162, 163, 147 N.E. pages 706, 707, ‘the situation is, not only without precedent, but anomalous' and ‘there can be no true precedent in the books, when the facts are unprecedented.’

In spite of the fact that the existence of Moscow Fire Insurance Company was, in 1918, terminated in Russia, its home, by decree of the Soviet Republic, it continued to transact business here until 1925 through its local or United States branch. Then by order of the Supreme Court of this State the Superintendent of Insurance took possession as liquidator of the assets of that branch (constituting the capital of the United States branch), pursuant to the provisions of section 63 of the Insurance Law. These assets consisted of securities deposited with the Insurance Department or held in trust for the policyholders and creditors of the company within the United States, as required by the statute. After the Superintendent of Insurance had paid the domestic policyholders and creditors and also the creditors, whether foreign or domestic, who acquired liens by attachment before liquidation was begun, the Superintendent still had in his possession assets of great value. In Matter of People, by Beha, v. Russian Reinsurance Co. of Petrograd, Russia, 255 N.Y. 415, 175 N.E. 114 the problem of the disposition that should be made of such surplus assets was presented.

Ordinarily any surplus, remaining after the domestic creditors and policyholders of a foreign insurance company doing business here were paid, would be transmitted to the foreign corporation at its domicile or to the domiciliary liquidator or administrator if the foreign corporation was in liquidation. Matter of People by Stoddard, Norske Lloyd Ins. Co., 242 N.Y. 148, 151 N.E. 159. The decrees of nationalization and confiscation by the unrecognized governmental establishment then ruling in Russia made that course impossible. Cf. James & Co. v. Rossia Ins. Co., 247 N.Y. 262, 160 N.E. 364. Alternative courses were urged upon us. The assets of the United States branch which had been taken over by the Superintendent of Insurance under authority of the State might be left in his custody until ‘a government in Russia is recognized by the United States or until the surplus funds may be transmitted to a liquidator or legal representative of the corporation at the domicile abroad (i. e., in Russia) or in accordance with any provision of a treaty of the United States;’ or the court might, in the exercise of its broad powers, provide, in the extraordinary condition then prevailing, an extraordinary method of administering and distributing the assets then in the control and custody of the State. The court chose the latter course. Matter of People, by Beha, v. Russian Reinsurance Co., supra, 255 N.Y. page 421, 175 N.E. 114.

In that case we pointed out that ‘in the silence of the statute, a decree instructing the liquidator as to the administration of the surplus must conform to the exactions of equity and justice.’ Though ‘the superintendent of insurance has fulfilled the statutory trust when he has paid the domestic creditors * * * for whom the trust was laid upon him,’ yet, so we said ‘the surplus must be made available for the payment of creditors and policy holders with claims founded upon foreign business' and any remainder distributed to those entitled to it, where possible through directors of the corporation. ‘The present state of the law in respect of these Russian corporations driven from their domicile, and there subjected to decrees of confiscation and extinction has been expounded with a full review of the decisions in a recent judgment of this court. Petrogradsky Mejdunarodny Kommerchesky Bank v. National City Bank, 253 N.Y. 23, 170 N.E. 479; cf. Severnoe Securities Corp. v. London & Lancashire Ins. Co., 255 N.Y. 120, 174 N.E. 299. The ruling was that they were still juristic persons, and that their boards of directors, represented by a quorum, were still competent to act. The doctrine of that decision controls the case at hand’ 255 N.Y. pages 422, 423, 425, 175 N.E. pages 116, 117.

Accordingly the Superintendent of Insurance was directed to pay ‘to the corporations, represented by directors, a quorum of the board,’ (255 N.Y. page 424, 175 N.E. page 117) the surplus...