People v. Russian Reinsurance Co. of Petrograd

Citation175 N.E. 114,255 N.Y. 415
PartiesPEOPLE, by BEHA, Superintendent of Insurance, v. RUSSIAN REINSURANCE CO. OF PETROGRAD, RUSSIA. PEOPLE, by BEHA, Superintendent of Insurance, v. FIRST RUSSIAN INS. CO.
Decision Date10 February 1931
CourtNew York Court of Appeals

OPINION TEXT STARTS HERE

In the matter of the application of the People, by James A. Beha, Superintendent of Insurance of the State of New York, against the Russian Reinsurance Company of Petrograd, Russia, and against the First Russian Insurance Company, established in 1827. From orders of the Appellate Division, First Department (229 App. Div. 637, 243 N. Y. S. 35), modifying and as modified affirming orders of the Special Term of the Supreme Court, dated September 7 and 10, 1929, directing the disposition of the surplus assets of the Russian Reinsurance Company of Petrograd, Russia, and the First Russian Insurance Company, established in 1827, such companies appeal.

Reversed and rendered.Appeal from Supreme Court, Appellate Division, First Department.

Frederick B. Campbell and Paul C. Whipp, both of New York City, for appellants Russian Reinsurance Co. and First Russian Ins. Co.

Walter H. Pollak, Borris M. Komar, and Ruth I. Wilson, all of New York City, for appellants creditors of the First Russian Ins. Co.

James F. Donnelly, Alfred C. Bennett, John M. Downes, and Clarence C. Fowler, all of New York City, for respondent Superintendent of Insurance.

John J. Bennett, Jr., Atty. Gen. (Joseph C. H. Flynn, Deputy Atty. Gen., of counsel), for the People.

CARDOZO, C. J.

The appellants, Russian Reinsurance Company of Petrograd, Russia, and First Russian Insurance Company, established in 1827, are corporations organized under the laws of the Russian Empire, with agencies or branches in the state of New York.

In August, 1925, the superintendent of insurance took possession of the assets of these branches in accordance with section 63 of the Insurance Law of the state (Consol. Laws, c. 28) to conserve them for the benefit of those entitled thereto. This action was taken in view of the hazards and embarrassments growing out of the confiscatory decrees of the Russian Soviet Republic, and not because of insolvency either present or imminent.

The liquidator was protected in the unimpeded liquidation of the assets by an injunction, sweeping in its generality, whereby creditors were restrained from pursuing their legal remedies by attachment or execution against the assets so sequestered, and even, it seems, from proceeding to trial. Matter of People, by Beha (In re Second Russian Ins. Co.), 244 N. Y. 606, 155 N. E. 916.

The liquidation in now finished. The domestic creditors and policyholders have been paid. Matter of People, by Stoddard (In re Norske Lloyd Ins. Co., Ltd.), 242 N. Y. 148, 151 N. E. 159. Paid also have been the creditors, whether foreign or domestic, who acquired liens by attachment before liquidation was begun. Cf. Matter of People, by Beha (In re First Russian Ins. Co.), 253 N. Y. 365, 171 N. E. 572. The superintendent holds in his hands a surplus of nearly a million dollars for the one company and of more than a million for the other. The question is what disposition he shall make of it.

Creditors and policyholders with claims arising out of foreign business insist that the time has now come when their claims should be enforceable. Either the liquidator of the domestic branch should pay them, or, if that remedy be denied, they should be relieved from the injunction which stays the remedy by suit. The insurance companies insist that they are still juristic persons, that they are represented by boards of directors resident in Paris and competent to act, and that subject to the remedies of creditors they are entitled to possession. No conflict of any moment exists between the position of the creditors on the one hand and that of the companies on the other, since the fact is not disputed that the liabilities are few and that a surplus will be left after all of them are paid.

Opposed, however, to the position of the creditors and the companies is the position of the superintendent of insurance, the statutory liquidator. He takes the ground that, in view of the hazards and uncertainties of the Russian situation, the surplus should not be paid to any one, but should be left in his hands indefinitely, until a government recognized by the United States shall function in the territory of what was once the Russian Empire. in the meantime creditors as well as companies must be told to stand aside.

The Appellate Division has upheld the contention of the superintendent, and has entered a decree accordingly. It did not solve the problem. It adjourned it sine die. By the terms of its decree the so-called plan of the superintendent of insurance ‘with reference to the distribution or disposition of the surplus' is ‘in all respects adopted.’ The surplus funds are to ‘be retained * * * 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.’ In the meantime the injunction is to be continued in all its rigor.

We are unable to accept the view that postponement to the Greek Kalends is the fitting answer to a prayer that the court unlock the fund and formulate a plan of release and distribution.

So far as creditors are concerned, the injustice of the plan is obvious, if plan it may be called. The superintendent took possession for the benefit of domestic creditors whose claims have now been paid. Other creditors, stayed from suing while the liquidation was in progress, have asked the courts to say that their day has now arrived. The answer is ‘not yet.’ The court, they have been told, will neither pay them through a liquidator nor lift the injunction restraining other remedies, nor even restore the surplus to the possession of the debtor. Liquidation is over, and there has been a fulfillment of the trust for which possession was assumed. Even so, the creditors not within the trust are to be stayed indefinitely and perhaps forever from the pursuit of any remedy, either in equity or at law. We may doubt whether an injunction so unmeasured is consistent with constitutional immunities, and, in particular, with the privilege of access to the courts. Sliosberg v. New York Life Ins. Co., 244 N. Y. 482, 155 N. E. 749;Truax v. Corrigan, 257 U. S. 312, 334, 42 S. Ct. 124, 66 L. Ed. 254, 27 A. L. R. 375. What cannot be doubted with reason is its hardship and inequity. 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.

Holding, as we do, that the surplus must be made available for the payment of creditors and policyholders with claims founded upon foreign business, there remains the question of the remedy. Shall creditors be permitted to prove their claims with the superintendent and to receive payment at his hands, or shall the order go no farther than to remove the bar of the injunction, and permit the prosecution of suits, with or without attachments, by the usual remedies at law? With exceptions presently to be noted, we think the latter course should be followed, the corporations being solvent and the danger being thus removed that the pursuit of legal remedies will result in waste or inequality. The superintendent of insurance has fulfilled the statutory trust when he has paid the domestic creditors and policyholders for whom the trust was laid upon him. It is no part of his duty to ascertain the validity of the claims that will be paid out of the surplus unless inequity would be done if the claimants were remitted to a remedy at law. An exception must indeed be recognized where attachments or executions were levied before the date of liquidation. These liens remained in force when the assets were transferred into the possession of the liquidator, and by order or agreement were to be ascertained and paid by him as a measure fairly incidental to the administration of the trust. Matter of People, by Beha (In re First Russian Ins. Co.), 253 N. Y. 365, 171 N. E. 572. An exception also must be recognized where proofs of claim were filed and diligently pressed while the superintendent was still in charge and the injunction still in force. The creditors so proving were acting in response to a published invitation, published in accordance with the order of liquidation, to submit claims of every kind without reference to the place of origin, and were stayed in the meantime from a remedy in the courts. There would be manifest inequity if at this late day an ancillary receiver were to remit them to their legal remedies and thus compel them to prove anew. Cf. Sands v. E. S. Greeley & Co. (C. C. A.) 88 F. 130;Culver Lumber & Mfg. Co. v. Culver, 81 Ark. 102, 99 S. W. 391,118 Am. St. Rep. 17; and see 44 Harvard Law Review, pp. 437-442, collating the decisions.

A court of equity, when once it has assumed control over a fund, may grant relief that ‘would otherwise be beyond the scope of its authority’ (McGean v. Metropolitan Elevated Ry. Co., 133 N. Y. 9, 17,30 N. E. 647, 648), if justice so requires. A different situation would be here if the corporation were insolvent with the result that payment by the liquidator of claims already filed might work a preference with relation to claims not yet submitted. Matter of People, by Beha (In re...

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