Penn General Casualty Co v. Commonwealth of Pennsylvania Schnader 11 8212 14, 1935

• Decision Date: 04 February 1935
• Docket Number: No. 431,431
• Citation: 79 L.Ed. 850,55 S.Ct. 386,294 U.S. 189
• Parties: PENN GENERAL CASUALTY CO. v. COMMONWEALTH OF PENNSYLVANIA ex rel. SCHNADER, Atty. Gen. Argued Jan. 11—14, 1935
• Court: U.S. Supreme Court

294 U.S. 189

55 S.Ct. 386

79 L.Ed. 850

PENN GENERAL CASUALTY CO.

v COMMONWEALTH OF PENNSYLVANIA ex rel. SCHNADER, Atty. Gen.

No. 431.

Argued Jan. 11—14, 1935.

Decided Feb. 4, 1935.

Messrs. Joseph W. Henderson and Thomas F. Mount, both of Philadelphia, Pa., for petitioner.

Mr. Wm. A. Schnader, of Philadelphia, Pa., for respondent.

Mr. Justice STONE delivered the opinion of the Court.

This case comes here on certiorari, 293 U.S. 547, 55 S.Ct. 126, 79 L.Ed. —-, directed to the Supreme Court of Pennsylvania, to resolve questions of public importance growing out of the conflicting claims of the federal District Court and of the insurance commis- sioner of the commonwealth of Pennsylvania, to jurisdiction over the liquidation of the business and affairs of appellant, an insolvent Pennsylvania insurance corporation.

The case was heard in the state Supreme Court upon an agreed statement of facts, deemed 'necessary to a determination of the question involved in the appeal,' which was filed in the state trial court. It purports to outline the substance of proceedings had in that court and in the federal District Court. The question is stated to be whether the state court, 'in view of the prior pendency of the suit * * * in the Federal court, had jurisdiction to enter the decree from which this appeal is taken.' The records of the pleadings and proceedings in those courts are not included in the record and are not before us.

Appellant was organized under the Insurance Company Law of May 17, 1921, P.L. 682. On September 14, 1933, appellant's officers and directors appeared at a hearing before the insurance commissioner at which the president of the company was ordered to return to it assets which he had improperly withdrawn from the company, with consequent serious impairment of its financial condition. On October 14, 1933, a further hearing was held before the Attorney General of the state, at which it appeared that the company was in an unsafe and unsound condition.

On November 17, 1933, a shareholder of the insurance company filed his bill of complaint against the company in the District Court for Eastern Pennsylvania. At this time negotiations, conducted by the commissioner with the stockholders of the company, for its rehabilitation were pending. The complaint alleged that the stockholder was a resident of West Virginia; that the requisite jurisdictional amount was involved; that officers of the company had misappropriated and wasted its assets; that the company was involvent and in a financially unsafe and unsound condition. The bill prayed the appointment of receivers, the liquidation of its property and business, and the usual injunction. Upon the filing of the bill, subpoena was issued and was served on the corporation on November 22, 1933.

On December 8, 1933, while the suit in the District Court was pending, the Attorney General of the state, acting pursuant to section 502, art. 5, of the Insurance Department Act of May 17, 1921, P.L. 789 (40 PS Pa. § 202), filed a suggestion with the court of common pleas of Dauphin county, alleging that the company was in a financially unsound condition; that the conduct of its business would be detrimental and hazardous to its policy-holders, creditors, and the public; that certain officers of the company had made illegal investments of the funds of the company and had appropriated to their own use other assets of the company. He prayed for an order that the defendant show cause why the business of the company should not be closed, its charter vacated, and its assets taken into possession of the insurance commissioner for liquidation under his direction, and for an injunction. On the same day the court of common pleas granted the order to show cause and enjoined the company from transacting any business and from disposing of its property until further order of the court. The order to show cause was served upon the company on December 11, 1933.

On December 14, 1933, the company filed an answer in the suit pending before the federal District Court, substantially admitting the alleged withdrawal of assets and illegal investment, and denying the other allegations of the complaint, and alleging the pendency of the proceedings in the court of common pleas.

On the same day the court of common pleas entered a further order restraining the company and its officers or agents from transacting any business and from dis- posing of its property and restraining all persons other than the insurance commissioner and his agents from taking possession of it. On the following day the federal District Court entered an order which recited the pendency of the proceedings in the court of common pleas and restrained the company and its officers or agents from permitting any one to receive or take possession of its property and enjoining all persons from interfering with it in any way. On that day both the last-mentioned restraining order of the court of common pleas and that of the federal District Court were served on the company.

After further proceedings, the court of common pleas entered its final decree, March 14, 1934, that the company be dissolved, and directing the acting insurance commissioner to take possession of and to liquidate the business and property of the casualty company in accordance with the provisions of the state Insurance Department Act. No final hearing has been held and no receiver has been appointed in the suit pending in the District Court, but, because of the restraining order of that court, the company has refused to comply with the demand of the commissioner for the surrender of its property in conformity with the decree of the state court.

On appeal from the court of common pleas, the state Supreme Court treated the case as one involving only a conflict of jurisdiction between the state court and the federal court. It viewed the comprehensive statutory scheme of the commonwealth for liquidating insurance companies by the insurance commissioner as binding on the company and its shareholder. It therefore thought that there could be no controversy between them which would be a proper subject of suit in the federal courts and that this was sufficient to preclude the exercise of jurisdiction of the federal court. It accordingly affirmed the decree. 316 Pa. 1, 173 A. 637.

The state court and the federal court have thus reached an impasse; each asserts the right to exercise its jurisdiction with respect to substantially the same subject-matter, the liquidation of the business, and assets of the insolvent corporation; each asserts its authority to enjoin interference, by the state officer on the one hand, and by any person except the state officer on the other; and each is unable to perform its function without acquiring possession and control of the property. In the state of the record before us, we confine our review to the single question of this conflict of jurisdiction considered and decided by the state court.

Section 502, art. 5, of the Insurance Department Act, authorizes the commissioner to liquidate an insurance company when its condition is such that further transaction of its business will be hazardous; such liquidation is permitted only on an order or decree of the court of common pleas, granted on application of the Attorney General of the state. Upon such application, the court is authorized by section 505, art. 5 (40 PS Pa. § 205) to enjoin the company from transacting any business and from disposing of its property, and after a hearing to direct the insurance commissioner to take possession of the property and to liquidate it pursuant to the statute. By sections 506, 507, art. 5 (40 PS Pa. §§ 206, 207), the order of the court vests the commissioner with the title to the property and supersedes the authority of any receiver appointed by any other state court.

It is plain that the state court, in the absence of the suit pending in the District Court, would have acquired jurisdiction to proceed with the cause and to grant the relief sought. But the question now presented is whether its authority to proceed is affected by the pendency of the suit in the District Court, which the state Supreme Court, on the record before it, treated as exercising a conflicting jurisdiction. The federal question, reviewable on appeal, is whether the state court has given proper effect to the proceedings and the order of the federal court. Buck v. Colbath, 3 Wall. 334, 340, 18 L.Ed. 257; Crescent City Live-Stock Co. v. Butchers' Union Slaughter House, etc., Co., 120 U.S. 141, 142, 7 S.Ct. 472, 30 L.Ed. 614; Moran v. Sturges, 154 U.S. 256, 267, 14 S.Ct. 1019, 38 L.Ed. 981; Central National Bank v. Stevens, 169 U.S. 432, 456, 18 S.Ct. 403, 42 L.Ed. 807; Farmers' Loan & Trust Co. v. Lake Street Elevated R. Co., 177 U.S. 51, 20 S.Ct. 564, 44 L.Ed. 667; Wabash R. Co. v. Adelbert College, 208 U.S. 38, 44, 54, 28 S.Ct. 182, 52 L.Ed. 379.

Where the judgment sought is strictly in personam, for the recovery of money or for an injunction compelling or restraining action by the defendant, both a state court and a federal court having concurrent jurisdiction may proceed with the litigation, at least until judgment is obtained in one court which may be set up as res adjudicata in the other. See Buck v. Colbath, supra, page 342 of 3 Wall., 18 L.Ed. 257; Kline v. Burke Construction Co., 260 U.S. 226, and cases cited at pages 230, 231, 43 S.Ct. 79, 67 L.Ed. 226, 24 A.L.R. 1077. But, if the two suits are in rem or quasi in rem, requiring that the court or its officer have possession or control of the property which is the subject of the suit in order to proceed with the cause and to grant the relief sought, the jurisdiction of one court must of necessity yield to that of the other. To avoid unseemly and disastrous conflicts in the administration of our dual judicial system, see Peck v. Jenness, 7 How. 612, 625, 12 L.Ed. 841; Taylor v. Carryl, 20 How. 583, 595, 15 L.Ed. 1028; ...