Richardson v. Kelly

• Decision Date: 29 December 1945
• Docket Number: No. A-196.,A-196.
• Citation: 191 S.W.2d 857
• Parties: RICHARDSON et al. v. KELLY.
• Court: Texas Supreme Court

191 S.W.2d 857

RICHARDSON et al. v. KELLY.

No. A-196.

Supreme Court of Texas.

December 29, 1945.

Rehearing Denied February 13, 1946.

Error to Court of Civil Appeals of Third Supreme Judicial District, Travis County.

Bill of review proceeding by Sid W. Richardson and another against Keith Kelly, receiver of National Indemnity Underwriters of America and of C. H. Verschoyle, Inc., to vacate a judgment, wherein numerous parties intervened as plaintiffs and the receiver filed a cross-action. The defendant receiver was succeeded by Herbert Marshall, who was substituted as a party defendant. An adverse judgment of the district court was affirmed by the Court of Civil Appeals, 179 S.W.2d 991, and the plaintiffs joined by one of the interveners bring error.

Affirmed.

Samuels, Brown, Herman & Scott and John M. Scott, all of Fort Worth, Milburn E. Nutt, of Wichita Falls, Wood, Gresham, McCorquodale & Martin, of Houston, and Sleeper, Boynton, Darden & Burleson, of Waco, for all petitioners except Houston Transp. Co.

Merrill & Scott, of Houston, for petitioner Houston Transp. Co.

M. B. Solomon, of Dallas, and Black, Graves & Stayton and Chas. L. Black, all of Austin, for respondent.

BREWSTER, Justice.

On May 2, 1945, this court handed down an opinion in this cause which a majority of the court as now constituted hold was erroneous. Accordingly that opinion is withdrawn, the judgment entered thereon is set aside, and the following is substituted as the opinion of the Court.

This is a bill of review filed by Sid W. Richardson and Richardson Oils, Inc., petitioners, against Keith Kelly, as receiver of National Indemnity Underwriters of America (NIU) and of C. H. Verschoyle, Inc., attorney in fact of NIU, respondent, to vacate a judgment rendered by the district court of Travis county. Numerous parties intervened as plaintiffs, and one of them, Houston Transportation Company, is a petitioner. A trial court judgment, adverse to plaintiffs and intervenors, was affirmed by the court of civil appeals. 179 S.W.2d 991.

NIU was an interinsurance exchange, organized under Arts. 5024 to 5033, R.S. 1925. Insurance against claims under the workmen's compensation statutes was its principal business, although it wrote automobile liability, fidelity bond and other insurance. Petitioners and some 3200 others became members by executing a power of attorney by which each appointed Verschoyle attorney in fact to act in the name of each, to exchange indemnity contracts among the subscribers and to bind them on applications by other subscribers on such terms and conditions as Verschoyle might deem proper, to adjust and pay off claims under subscriber contracts, to demand, receive and disburse all moneys due by subscribers, "to accept service of process and to appear for me in any suits, actions or proceedings and bring, prosecute, defend, compromise, settle or adjust same," and "to perform every act not herein specially mentioned that could be performed in relation to any contract thereby authorized."

On December 28, 1937, upon petition of the State of Texas against NIU and Verschoyle, its attorney in fact, the district court of Travis county adjudged that NIU was insolvent from September 30, 1936 to December 28, 1937, and appointed one Norris as receiver to liquidate its business. Norris was succeeded by Kelly and Kelly by Herbert Marshall.

On June 1, 1939, Kelly, receiver, sued NIU, petitioners and 190 other defendants in cause No. 61778 in the district court of Travis county seeking to hold them liable as partners for $747,000 as judgments and other liabilities due by NIU. Petitioners Sid W. Richardson and Houston Transportation Company filed pleas of privilege which were controverted by Kelly, but no disposition was ever made of them. On December 9, 1939, on motion of Kelly, the case was dismissed "without prejudice."

On December 11, 1939, Kelly mailed post card notice to all subscribers that claims aggregating $400,000 had been established against NIU and that, to pay them, "it is necessary that all subscribers to this reciprocal during the period of its insolvency * * * make payment to me of an amount equal to one annual premium on all policies held or contracted for by said subscribers."

On June 29, 1940, Kelly filed in the receivership action a motion stating that the liabilities of NIU exceeded its assets by some $400,000 and asking authority to collect from its former subscribers "what is termed an assessment, because of their membership." The court ordered Kelly to file "such suit for the purpose of establishing such liability against said former subscribers, in order to collect such assessment for which they may be liable, the form of said suit to be determined by the said Receiver."

On July 11, 1940, pursuant to this order, Kelly, as receiver and trustee for NIU and Verschoyle, filed suit in cause No. 63621 against 28 named defendants "and all other subscribers and policyholders" of NIU during its insolvency, alleging that "each and all of said subscribers are obligated, bound and have promised to pay into the exchange, in addition to the premiums charged in said indemnity contracts, an amount of money equal to an additional annual premium, * * * which amount will be necessary to discharge the obligations of the said subscribers for the losses, claims and expenses incurred." Petitioners were not named as defendants, but Kelly's prayer was that the 28 defendants be required, individually and as representatives of all subscribers, to take notice of the suit and that judgment be rendered fixing the liability of each named defendant and all other subscribers during the insolvency period, as a class, and that it be fixed at one additional premium.

In his judgment, rendered March 8, 1941, the trial court found that the named defendants and all other subscribers had authorized Verschoyle to act for them in exchanging reciprocal insurance, to collect moneys due by them and to appear for them in any legal action; that Verschoyle had authority to bind them severally but not jointly; that each subscriber was an insurer as well as an insured and was liable to pay his pro rata part of all losses; that an assessment of one additional annual premium on each policy in force during any part or all of the insolvency period was the most equitable manner in which to pay the liabilities of NIU; and that the defendants named "are truly representative of all subscribers and fairly and actually represent the whole class of subscribers." It adjudged that the receiver recover from each defendant an amount of money equal to a full annual premium on each policy during the insolvency period and that the judgment should bind all subscribers because they "constitute a class whose rights * * * are fairly and truly represented herein by the named defendants appearing and answering." (Italics ours.)

Three defendants gave notice of appeal but none was ever perfected, so the judgment became final on April 8, 1941.

This suit was filed May 16, 1941. The plaintiffs alleged that they had no notice, actual or constructive, of the pendency of cause No. 63621, and did not learn of the judgment therein until April 12, 1941, when it was too late to appeal; that as they had been parties to cause No. 61778 they had reason to assume that they would be made parties to any subsequent suit or at least be notified so that they could intervene; that those sued in cause No. 63621 were persons whose liability was small and were purposely selected so that they would have neither incentive nor ability to defend the suit; that, therefore, Kelly had not proceeded with the degree of fairness and good faith which equity requires in class actions; and that their failure to discover the pendency of the suit or sooner to learn of the judgment therein was not due to any negligence on their part. They alleged that the judgment was invalid because less than one per cent of the subscribers were parties defendant; that of those sued two were dismissed and default judgment was taken against six; that although the others filed formal answer, only five appeared at the trial and they offered no testimony and cross examined no witnesses; that Kelly was negotiating before the trial with other defendants for settlement of their liability, thereby lessening the possibility of a contest; that of the three defendants giving notice of appeal, the liability of one was only $18 while Kelly settled with the other two within two weeks after the judgment became final, which precluded any appeal. They alleged, further, that had they known of the suit they would have intervened with "good and sufficient defenses," because under their power of attorney to Verschoyle they were not liable for any assessment, all of which appeared in the application, agreement and power of attorney adopted by all subscribers and filed with the state insurance commission; that, therefore, Kelly's allegation that they were liable for a further assessment was false and a fraud on the court; and that, if construed as a valid adjudication of their liability, the judgment would deprive them of their property without due process of law.

Petitioner Houston Transportation Company, Intervenor, alleged that it had three policies with NIU from June 15, 1936, to September 1, 1937; that the power of attorney, applications and agreements by which it became a subscriber did not permit the assessment of an additional annual premium but expressly limited its liability to any surplus from premiums paid; that the demand asserted by Kelly in cause No. 61778 was essentially the same as that asserted in cause No. 63621; that it filed a plea of privilege in cause No. 61778, which Kelly controverted but failed to have heard; that, instead, he dismissed the case after learning that it would defend on the ground of its limited liability, so it had a right to assume that it would be made a party to any other litigation or be notified...