O'Neil v. Welch

• Decision Date: 23 July 1917
• Docket Number: 2227.
• Citation: 245 F. 261
• Parties: O'NEIL, Insurance Com'r, et al. v. WELCH et al.
• Court: U.S. Court of Appeals — Third Circuit

245 F. 261

O'NEIL, Insurance Com'r, et al. v. WELCH et al.

No. 2227.

United States Court of Appeals, Third Circuit.

July 23, 1917

Rehearing Denied October 4, 1917.

Joseph L. Kun and William M. Hargest, Deputy Attys. Gen., and Francis Shunk Brown, Atty. Gen., for appellants.

Percival H. Granger and J. Howard Reber, both of Philadelphia, Pa for appellees.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

WOOLLEY Circuit Judge.

This is an appeal from a decree of the District Court dismissing a petition of the Insurance Commissioner and Attorney General of the Commonwealth of Pennsylvania, asking the court to revoke its appointment of a receiver. The question is one of jurisdiction growing out of a conflict between State and Federal courts. As the facts are fully stated in the opinion of the District Court ((D.C.) 238 F. 968), only a brief outline is necessary to the present discussion.

The Union Casualty Insurance Company was a corporation of the Commonwealth of Pennsylvania. Under insurance laws in force at the time of its incorporation (Act of April 4, 1873, P.L 20; Act of May 1, 1876, P.L. 53), the Insurance Commissioner of the Commonwealth had general supervision of insurance companies, with power to inquire concerning their solvency and management and to proceed against them when insolvent or fraudulently conducted. By the Act of June 1, 1911, the insurance laws of the Commonwealth of Pennsylvania were in part repealed and with new provisions were reenacted in a comprehensive system of State control, covering the examination, regulation, rehabilitation, liquidation and dissolution of insurance companies incorporated and doing business under the laws of that Commonwealth (Acts of June 1 1911, P.L. 567, 581, 598, 599, 602, 604, 607). The Act of June 1, 1911 (P.L. 599) provides, among other things, a method of proceeding against insolvent and fraudulently conducted insurance companies, which, so far as it affects the question in issue, is as follows:

'That whenever any domestic insurance company, association, society, or order, including all corporations, associations, societies, and orders which are subject to examination by the Insurance Commissioner, or which are doing or attempting to do, or representing that they are doing, the business of insurance in this Commonwealth; * * * (a) is insolvent; * * * or (e) is found, after an examination, to be in such condition that its further transaction of business would be hazardous to its policy-holders, or to its creditors, or to the public * * * the Insurance Commissioner may, throught the Attorney General, apply to the Court of Common Pleas of Dauphin County, or to the Court of any county in which the principal office of such corporation is located, for an order directing such corporation to show cause why the Insurance Commissioner should not take possession of its property and conduct its business, and for such other relief as the nature of the case and the interests of its policyholders, creditors, stockholders, or the public may require.

'Sec. 2. On such application, or at any time thereafter, such court may, in its discretion, issue an injunction restraining such corporation from the transaction of its business or disposition of its property until the further order of the court. On the return of such order to show cause, and after a full hearing, the court shall either deny the application or direct the Insurance Commissioner forthwith to take possession of the property and conduct the business of such corporation, and retain such possession and conduct such business until, on the application either of the Commissioner, through the Attorney General, or of such corporation, it shall, after a like hearing, appear to the court that the ground for such order directing the Insurance Commissioner to take possession has been removed, and that the corporation can properly resume possession of its property and the conduct of its business.

'Sec. 3. If, on a like application and order to show cause, and after a full hearing, the court shall order the liquidation of the business of such corporation, such liquidation shall be made by and under the direction of the Insurance Commissioner, who shall be vested by operation of law with title to all of the property, contracts, and rights of action of such corporation as of the date of the order so directing him to liquidate. * * * '

On November 15, 1916, the Insurance Commissioner of the Commonwealth of Pennsylvania, by the Attorney General, filed a suggestion in the Court of Common Pleas of Dauphin County (hereinafter called the State court), in conformity with the provisions of the quoted Act, and obtained a rule directed to The Union Casualty Insurance Company (hereinafter called the Insurance Company) 'to show cause why the Insurance Commissioner should not take possession of its property, and to show cause why the Court should not order the liquidation of the business of the said company and the dissolution of the said corporation.'

Pursuant to the provision of the Act, that 'On such application * * * such court may * * * issue an injunction restraining such corporation from the transaction of its business or disposition of its property,' that court, at the time it received the suggestion and granted the rule, ordered, that:

'Pending the further order of this court, the said Union Casualty Insurance Company of Philadelphia, Pa., its officers, agents and employees, are hereby enjoined and restrained from transacting any of the business of said company or disposing of any of its property.'

The rule was made returnable November 29, 1916. On that day the Insurance Company appeared and filed its answer to the suggestion, with a prayer that the rule be continued to December 19, 1916. The continuance was granted. On December 18, 1916, the day before the return day of the rule, Homer G. Welch, a citizen of New Jersey, and Consolidated Investment Company, a corporation of Delaware, filed a stockholders' bill in the District Court of the United States for the Eastern District of Pennsylvania (hereinafter called the Federal court), alleging solvency of the Insurance Company and praying the appointment of a receiver for the conservation of its property pending the adjustment of its difficulties. Although the Insurance Company had already appeared and answered in the proceeding in the State court, it voluntarily appeared in the Federal court and filed an answer concurrently with the bill, admitting its allegations; whereupon the Federal court appointed a receiver. The receiver immediately took possession of all assets of the Insurance Company within his reach, and served certified copies of his appointment upon the Attorney General of the Commonwealth of Pennsylvania and upon the judges of the State court.

The State court, on December 19, 1906, the return day of the rule to show cause, acting apparently in ignorance of the proceeding in the Federal court of the day before, proceeded with its hearing and entered an order directing the dissolution of the Insurance Company and the liquidation of its assets by the Insurance Commissioner in the manner prescribed by law, the decree being expressly based on the finding that the Insurance Company was insolvent and that its further transaction of business would be hazardous to its policyholders, its creditors and the public. On the next day, december 20, 1916, the Insurance Commissioner and the Attorney General, being then informed of the action of the Federal court, hastened to the Federal court and presented a petition praying that it revoke its appointment of a receiver. The Federal court granted a rule to show cause why its order of appointment should not be vacated, and upon its return, dismissed the petition and discharged the rule, in accordance with an opinion filed ((D.C.) 238 F. 968). This is an appeal from that decision.

The denial of the petition by the Federal court was based upon its understanding that its appointment of a receiver and his appropriation of the res prior to the decree of dissolution but subsequently to the institution of proceedings in the State court vested jurisdiction in the Federal court so fully and completely that neither law nor comity required its surrender to the State court. Judging from the consideration given by the learned District Judge to the general subject of conflict of jurisdiction between State and Federal courts, we infer that the broad subject, with its many phases, was as elaborately discussed before him as it was before us, raising many questions which we think are not in issue.

As we view the case, it does not present questions:-- whether a Federal court has power to decree the dissolution of a corporation of the Commonwealth of Pennsylvania in a proceeding in which its jurisdiction first attached; whether a Federal court has authority to supersede and take away the general control over insurance companies vested by State statute in the Insurance Commissioner, before the Insurance Commissioner has in the exercise of his control begun proceedings in a State court; whether a Federal court has authority to supersede and annul action by a State court after proceedings there have been begun and jurisdiction has been acquired; or, generally, whether a state law can limit or impair the jurisdiction of a Federal court conferred by Act of Congress, or whether a Federal court, having first acquired jurisdiction, should in comity relinquish it to a State court in deference to state statutes. All these questions were in some measure considered in the decision and argued on appeal. As we view it, the case presents the single question: Which court first acquired jurisdiction? No other question is in issue and no...