Pioneer Annuity Life Ins. Co., by Childers v. Rich, 1

• Decision Date: 27 January 1994
• Docket Number: CA-CV,No. 1,1
• Parties: PIONEER ANNUITY LIFE INSURANCE COMPANY, an Arizona corporation, by S. David CHILDERS, Director of Insurance and Receiver, and Ray E. Gill, Deputy Receiver for Pioneer Annuity Life Insurance Company, Petitioner-Appellee, v. Jack D. RICH and Verna Rich, his wife, Respondents-Appellants. 91-0349.
• Court: Arizona Court of Appeals

Page 682

880 P.2d 682

179 Ariz. 462

PIONEER ANNUITY LIFE INSURANCE COMPANY, an Arizona corporation, by S. David CHILDERS, Director of Insurance and Receiver, and Ray E. Gill, Deputy Receiver for Pioneer Annuity Life Insurance Company, Petitioner-Appellee, v. Jack D. RICH and Verna Rich, his wife, Respondents-Appellants.

No. 1 CA-CV 91-0349.

Court of Appeals of Arizona, Division 1, Department E.

Jan. 27, 1994.

Review Denied Sept. 20, 1994.

[179 Ariz. 463] Stockton & Hing by Robert Ong Hing, Thomas F. Ames, Scottsdale, for respondents-appellants.

Guttilla & Murphy by Eileen T. Baldwin, Phoenix, for petitioner-appellee.

OPINION

McGREGOR, Judge.

The Arizona Constitution makes shareholders of banking or insurance corporations individually responsible for all contracts, debts, and engagements of the corporation to the extent of the par value of their stock, in addition to the amount invested in the shares. Ariz. Const. art. XIV, § 11 (section 11). In this appeal, we consider whether section 11 is self-executing. If it is, we must decide when a cause of action accrues and whether the receiver for an insolvent insurance company may bring an action on behalf of the company's creditors.

I.

In 1974, appellant Jack Rich (Rich) purchased all 250,000 outstanding shares of stock in Pioneer Annuity Life Insurance Company (Pioneer). In December 1984, because of Pioneer's financial difficulties, the Director of the Arizona Department of Insurance (Director) placed Pioneer under the supervision of the Department of Insurance (Department). Following an administrative hearing on March 4, 1985, the Director found Pioneer insolvent and appointed a conservator. On May 1, 1985, the Director filed an action in superior court seeking appointment of a receiver for Pioneer. On May 8, 1985, the trial judge declared Pioneer insolvent, placed Pioneer into receivership, appointed the Director as receiver, and instructed him to continue with Pioneer's liquidation. On May 7, 1986, the Director, acting as receiver, brought an action against Rich, as sole shareholder, to recover $250,000 (the par value of Rich's stock in Pioneer) for Pioneer's "contracts, debts, and engagements."

The receiver's action against Rich relied upon section 11, which provides:

The shareholders or stockholders of every banking or insurance corporation or association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation or association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares or stock; .... ¹

Ariz. Const. art. XIV, § 11.

Pioneer filed two motions for summary judgment. In resolving those motions in Pioneer's favor, the trial court ruled that section 11 is self-executing; that the receiver appointed to collect a corporation's assets is a proper party to sue to enforce the liability; and that the receiver timely brought this action, which accrued under section 11 upon the judicial determination of insolvency. The court rejected Rich's argument that material issues of fact existed regarding whether payments he made to the corporation prior to receivership satisfied his constitutional obligation, finding that Rich failed to present competent evidence that he actually contributed money to the corporation.

Rich appealed from the judgment in favor of Pioneer, challenging all the conclusions and findings described above. We have jurisdiction pursuant to Arizona Revised Statutes Annotated ("A.R.S.") section 12-2101.B.

II.

In reviewing a trial court's grant of summary judgment, we review questions of law de novo. Libra Group, Inc. v. State, 167 Ariz. 176, 179, 805 P.2d 409, 412 (App.), rev. denied, 168 Ariz. 337, 813 P.2d 318 (1991). We view all facts in the light most favorable to the party against whom judgment was entered. State ex rel. Corbin v. Challenge, Inc., 151 Ariz. 20, 24, 725 P.2d 727, 731 (App.1986).

A.

We first consider whether section 11 is self-executing. Rich contends that section 11 is not self-executing because it does not provide "a sufficient method whereby the rights which it grants may operate without the aid of further legislative enactment," quoting Miller v. Wilson, 59 Ariz. 403, 408, 129 P.2d 668, 670 (1942). ²

The Arizona Supreme Court, however, has already considered and rejected Rich's argument. In Fredericks v. Hammons, 33 Ariz. 310, 264 P. 687 (1928), the shareholders of an insolvent banking institution challenged section 11 and banking legislation enacted pursuant to that section, ³ arguing the double liability provisions that were part of both section 11 and the legislation were unenforceable. The Fredericks court first held that the banking legislation did not impair the obligations of contract and therefore did not violate the United States Constitution. The court then stated:

Besides, there is no doubt that section 11 of article 14 of the state Constitution is self-executing and itself imposed double liability on all shareholders or stockholders of banking institutions organized after the Constitution was adopted. By such provision the nature and extent of the rights conferred and of the liabilities imposed are fixed and can easily be determined thereunder. It contains no reference to legislative action as needed in its aid. Such provision has generally been held to be self-executing.

Id. at 323, 264 P. at 691-92 (emphasis added).

Rich urges us to disregard the court's statement concerning the self-executing nature of section 11, contending that the language is mere dicta, given the court's holding that the banking legislation imposed liability upon the bank shareholders. We disagree.

The Fredericks court made it clear that, even if no legislation on point had existed, the bank shareholders would have been liable to the creditors of the banking institution under section 11. Id. at 323, 264 P. at 691-92. "[C]onstitutional provisions are self-executing if, by their terms, it is apparent that such was the intent of their framers." Miller, 59 Ariz. at 408, 129 P.2d at 670 (emphasis in original) (citation omitted). In Fredericks, the supreme court not only upheld the legislation but also clearly expressed its view that the framers intended that section 11 be self-executing. When, as occurred in Fredericks, a court "relie[s] on both grounds discussed in the opinion ..., neither holding is dictum." State v. Pena, 140 Ariz. 545, 548, 683 P.2d 744, 747 (App.1983); see also Dragor Shipping Corp. v. Union Tank Car Co., 371 F.2d 722, 726 (9th Cir.1967) ("Where an appellate court decision rests on two or more grounds, none can be relegated to the category of obiter dictum."). We interpret the supreme court's statement that section 11 is self-executing as one of the grounds relied upon in its opinion. The holdings of the Arizona Supreme Court bind this court. Bade v. Arizona Dep't of Transp., 150 Ariz. 203, 205, 722 P.2d 371, 373 (App.1986). We conclude that the supreme court has decided the first issue Rich argues and therefore regard section 11 as self-executing.

Rich contends, however, that the banking case of Button v. O.S. Stapley Co., 40 Ariz. 79, 9 P.2d 1010 (1932), which referred to Cowden v. Williams, 32 Ariz. 407, 259 P. 670 (1927), implicitly overruled the Fredericks holding that section 11 is self-executing. Specifically, Rich relies upon the following statement in Button:

Section 11 ... creates the stockholders' double liability, but it does no more. In other words, it does not prescribe the kind or character of remedy or procedure to be followed to enforce such liability nor when suit shall be brought. These, of course, were left to be prescribed by the legislature.

Button, 40 Ariz. at 82, 9 P.2d at 1011 (citing Cowden, 32 Ariz. 407, 259 P. 670).

Neither Button nor Cowden, however, addressed the issue whether section 11 is self-executing; rather, those cases considered (and upheld) the constitutionality of banking laws the Arizona legislature passed pursuant to section 11. In Cowden, an insolvent bank's shareholders challenged the constitutionality of banking legislation that permitted a receiver to enforce the rights of individual creditors against the shareholders. ⁴ The court held that the statute did not conflict with section 11 and did not violate the shareholders' constitutional rights. ⁵ In Button, the supreme court considered whether the legislature had authority to permit a cause of action against bank shareholders to accrue at a time earlier than that which the constitution otherwise would imply. The court held that the legislature could do so, but that the constitution prohibited entry of judgment against the shareholders until after a judicial determination of insolvency. Button, 40 Ariz. at 84, 9 P.2d at 1011.

The holdings of Cowden and Button are consistent with the principle that self-executing constitutional provisions generally do not bar legislation on the same subject. Direct Sellers Ass'n v. McBrayer, 109 Ariz. 3, 5, 503 P.2d 951, 953 (1972). Thus, the court's approval of legislation that addressed the enforcement of section 11 against bank shareholders is consistent with its Fredericks holding that section 11 is self-executing and enforceable. ⁶

B.

Rich also argues that, even if section 11 is self-executing, it is unenforceable because the constitution is silent about who may enforce its provisions. Rich's argument that the provision is unenforceable leads to the untenable conclusion that the legislature could eliminate a constitutional right of recovery simply by choosing not to enact legislation to implement the constitutional provision. We reject that approach and instead agree with the Minnesota Supreme Court, which considered a similar argument and held:

Does the discharge of a Minnesota corporation in bankruptcy release its stockholders from the liability for its debts imposed by section 3, art. 10, of our...