People ex rel. Schacht v. Main Ins. Co.

Decision Date21 April 1983
Docket NumberNo. 82-2281,82-2281
Citation70 Ill.Dec. 72,114 Ill.App.3d 334,448 N.E.2d 950
Parties, 70 Ill.Dec. 72 The PEOPLE of the State of Illinois, ex rel. James W. SCHACHT, Acting Director of Insurance as Rehabilitator for Main Insurance Company, Plaintiff-Appellee, v. MAIN INSURANCE COMPANY and Mainway Financial Corporation, Defendants- Appellants.
CourtUnited States Appellate Court of Illinois

Howard E. Gilbert, Michael D. Richman, Herman, Tannebaum, Levine & Gilbert, Chicago, for defendants-appellants.

Jeremiah Marsh, Michael Schneiderman, Michael M. Conway, Mary K. Butler, Hopkins & Sutter, Chicago, for plaintiff-appellee.

ROMITI, Presiding Justice:

In 1977, the Illinois Director of Insurance took over the assets of Main Insurance Company under a court order of rehabilitation. In 1980 the Director filed for liquidation. Attorneys who had acted for Main's shareholder were appointed by the court to defend Main. After trial the trial court initially denied the petition for liquidation; later it reversed itself and granted the petition. It also held that it had no discretion to award attorneys' fees to the attorneys defending Main and refused to provide for a transcript of the report of proceedings. Thus very little of the record is before the court. On appeal Main contends that:

(1) the trial court erred in holding it had no power to award attorneys' fees;

(2) the trial court erred in admitting certain exhibits into evidence as they did not qualify as business records;

(3) section 190(5) of the Insurance Code (Ill.Rev.Stat.1981, ch. 73, par. 802(5)), if interpreted to require the introduction of any exhibit attached to the complaint, however irrelevant or otherwise improper, is unconstitutional;

(4) the trial court erred in admitting opinion evidence on the claims reserves of Main without sufficient foundation of fact.

The Director of Insurance on appeal contends:

(1) in light of the Insurance Code, the court had no discretion to award attorneys' fees to attorneys not appointed by the Director;

(2) in the absence of a report of proceedings, the appellate court must presume that the judgment was supported by the evidence;

(3) the exhibits were properly admitted as business records and, as to one of the exhibits, as an exhibit attached to the complaint;

(4) the opinion evidence was proper under Wilson v. Clark (1981), 84 Ill.2d 186, 49 Ill.Dec. 308, 417 N.E.2d 1322.

We hold that the trial court erred in holding it had no discretion to award attorneys' fees. We further note that the other issues raised are serious in nature, particularly in light of the fact that the trial court initially denied the petition for liquidation and Wilson v. Clark was not applicable to the trial of this case. These issues however are not reviewable in the absence of a transcript. In light of the strong public policy involved here, we remand this case to the trial court and order it to make some provision for a sufficient report of proceedings so that the case may be properly reviewed by this court.

Main Insurance Company is an Illinois corporation organized under the Illinois Insurance Code to insure property and casualty risks. While its principal place of business is in Chicago, Illinois it does business in other states as well as Illinois.

On January 18, 1977, the Director of Insurance filed a complaint for rehabilitation of Main under section 188 of the Insurance Code (Ill.Rev.Stat.1975, ch. 73. par. 800), which provides for rehabilitation where consented to by a majority of the directors of the company. (Here the directors unanimously agreed to rehabilitation.) Unlike liquidation, rehabilitation has as its purpose the preservation, whenever possible, of the business of an insurance company threatened with insolvency. (In the matter of Allcity Insurance Co. (1979), 66 A.D.2d 531, 413 N.Y.S.2d 929.) On January 19, 1977, the trial court entered an order of rehabilitation empowering the Director as Rehabilitator to immediately take possession of all of the property, business and affairs of Main. Main was enjoined from transacting any company business or disposing of any company property or assets without the consent of the Director or until further notice of the court. The law firm of Arvey, Hodes, Costello & Burman, which had previously appeared for Main, was appointed by the Rehabilitator to aid in conducting the rehabilitation of the company.

In November 1980, the Director filed a petition that Main be found insolvent and liquidated. Main, by its attorneys, the Arvey firm, filed a cross-petition seeking an order that the rehabilitation be terminated and Main be returned to its former management. Main further contended that in light of the court approved plan of rehabilitation, the filing of a liquidation action was improper and premature.

In response, the Director filed a separate action on February 6, 1981, again seeking liquidation. On February 25, 1981, the Arvey law firm filed a petition to clarify its status as attorneys in representing Main and resisting the Director's petition. Over the Director's objection, the court ruled that the Arvey firm had the right to represent Main in connection with the hearings on the pending petition for liquidation and Main's cross-petition and to be paid reasonable attorneys' fees from the Main estate in connection with its opposition to the petition for liquidation. The Director has not appealed from this order.

On March 9, 1981, Mainway Financial Corporation, represented by the law firm of Herman, Tannebaum, Levine and Gilbert, was given leave to intervene in the liquidation proceedings. Mainway is the sole stockholder of Main.

On May 6, 1981, the Arvey firm sought leave to withdraw as counsel for Main on the grounds that while its representation had initially been necessary to afford due process, Main's interests and Mainway's appeared to be identical so that the defense could be continued by Mainway. The court granted the motion on the condition that the Herman firm appear instanter as counsel for Main. It also, over the Director's objection, awarded attorneys' fees to the Arvey firm, such fees being treated as a "reasonable and necessary expense in the administration of the estate." Again the Director has not appealed from the award.

The case was tried and the trial concluded in late summer 1981. On October 20, 1981, the trial court entered an order denying plaintiff's petition for liquidation. On June 22, 1982, the trial court vacated its original ruling and found Main to be insolvent. Apparently this reversal was based on a decision by the trial court to accept as proper evidence and rely upon certain opinion evidence it had previously rejected. The order of liquidation, however, was stayed without bond pending appeal. The trial court denied the Herman firm's petition for attorneys' fees, holding it was without discretion to award attorneys' fees.

I.

Because the trial court found it had no power to award attorneys' fees the issue before this court is not whether such fees should have been awarded but merely whether the trial court could have awarded such fees and erred in refusing to consider the motion. It is well established that as a general rule where an application has been made for the appointment of a receiver for a corporation, attorneys' fees and expenses, if incurred in good faith, may become a valid claim against the receiver, such claim being addressed to the sound discretion of the trial court. Roddis v. Strong (1967), 250 Cal.App.2d 304, 58 Cal.Rptr. 530; Anderson v. Great Republic Life Insurance Co. (1940), 41 Cal.App.2d 181, 106 P.2d 75; Masterton v. Lenox Realty Co. (1940), 127 Conn. 35, 15 A.2d 15; Esarey v. Pierson (1923), 84 Ind.App. 109, 141 N.E. 87; O'Malley v. Continental Life Insurance Co. (1938), 343 Mo. 382, 121 S.W.2d 834; In re People by Beha (1930), 136 Misc. 715, 716, 242 N.Y.S. 100; People v. Commercial Alliance Life Insurance Co. (1896), 148 N.Y. 563, 42 N.E. 1044; Barnes v. Newcomb (1882), 89 N.Y. 108; Watson v. Johnson (1933), 174 Wash. 12, 24 P.2d 592; Sims v. Homeskeepers Fire Insurance Co. (1938), 120 W.Va. 459, 199 S.E. 69; 19A Appleman Insurance Law and Practice § 10712.

Such fees are in the nature of expenses incurred by the corporation and its directors in the protection and preservation of the trust which they represent. (Watson v. Johnson (1933), 174 Wash. 12, 24 P.2d 592; People v. Commercial Life Insurance Co. (1896), 148 N.Y. 563, 42 N.E. 1044.) Where the very existence of the corporation is attacked, it is the corporation's right (Masterton v. Lenox Realty Co. (1940), 127 Conn. 35, 15 A.2d 15; and see Assets Realization Co. v. Defrees, Brace & Ritter (1907), 225 Ill. 508, 80 N.E. 263), and indeed the duty of all of its officers (Esarey v. Pierson (1923), 84 Ind.App. 109, 141 N.E. 87, and see Wolbrette v. New Orleans Drug Co. (1921), 149 La. 434, 89 So. 406), to take the necessary steps to protect its corporate existence and to repel an attack which it regards as unfounded.

The Director cites no case in opposition to this rule. Nor does he cite any case holding that the court lacks the power to award attorneys' fees out of the company's assets. Despite this lack of authority, he contends that the court had no power to award fees for the following reasons.

(1) The Insurance Code narrowed the discretion of the chancery court and only permits fees to be awarded to firms appointed by the Director.

(2) The cases cited before are irrelevant because, so the Director inaccurately alleges, they involved the resistance to the appointment of a receiver while the company was still under the direction and control of the company's officers and directors; whereas, here the assets had already been taken over by the Director in 1977. The Director contends that if the directors wished to contest the takeover, they should have done so in 1977 and having failed to do so cannot now claim attorneys' fees in order to contest...

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