Roddis v. Strong

• Decision Date: 21 April 1967
• Court: California Court of Appeals Court of Appeals
• Parties: Richard S. L. RODDIS, Insurance Commissioner of the State of California, Applicant, Conservator and Respondent, v. William STRONG, Appellant. Civ. 29419.

Page 530

58 Cal.Rptr. 530

250 Cal.App.2d 304

Richard S. L. RODDIS, Insurance Commissioner of the State of California, Applicant, Conservator and Respondent, v. William STRONG, Appellant.

Civ. 29419.

Court of Appeal, Second District, Division 5, California.

April 21, 1967.

William Strong, in pro. per.

Thomas C. Lynch, Atty. Gen., and Arthur C. de Goede, Deputy Atty. Gen., for respondent.

HUFSTEDLER, Associate Justice.

Strong appeals from an order denying his application for attorney's fees for his representing All-Coverage Insurance Exchange Automobile and Fire (Exchange') and its attorney-in-fact, All-Coverage Underwriters, Inc. ('Underwriters'), in their efforts to terminate the Insurance Commissioner's conservatorship of both organizations, contending that the trial court did not give him a 'full hearing' on his applications for fees and that the trial court abused its discretion in refusing to award him reasonable fees from the insolvents' assets in the conservator's hands.

The principles of law controlling an award of attorney's fees in resisting conservatorship are stated in McConnell v. All-Coverage Insurance Exchange (1964) 229 Cal.App.2d 735, 40 Cal.Rptr. 587, a case affirming an award of attorneys' fees and expenses in favor of the attorneys who initially handled the litigation for the same clients, Exchange and Underwriters, at the threshold of the same conservatorship: The trial court in its discretion may award reasonable attorneys' fees to counsel for a company defending itself against conservatorship if, considering all of the facts and circumstances in the particular case, the court is satisfied that resistance to conservatorship be in good faith and upon reasonable grounds.

Summary of the Facts

Exchange is an organization of persons who exchange reciprocal insurance contracts with each other. The sole business of Underwriters, a California corporation, is to act as attorney-in-fact for the subscribers or policyholders of Exchange and to perform certain services for Exchange pursuant to a contract between Exchange and Underwriters. The capital stock of Underwriters is owned principally by R. G. Horwitz and his brother-in-law, H. M. Robbins. Horwitz was simultaneously chairman of the board of governors of Exchange and president of Underwriters.

On November 21, 1962, the Insurance Commissioner, pursuant to section 1011 of the Insurance Code, filed an application for appointment of a conservator for Exchange and Underwriters, averring among other things that Exchange was insolvent, that its report of reserves filed with the Department of Insurance erroneously stated its reserves, that Exchange had willfully removed certain records from its files to mislead the Insurance Commissioner about the true condition of Exchange, and that Exchange paid over $200,000 upon a liability which was Underwriters'. The application was granted on the date it was filed, and the conservator took immediate possession of Exchange and Underwriters. Through their counsel, Wright, Wright, Goldwater & Mack and Neil Cunningham, Exchange and Underwriters answered and filed on January 7, 1963, a petition to terminate the conservatorship. The attorneys for Exchange and Underwriters applied for an order directing payment of a retainer to them from funds in the hands of the conservator and payment of a sum to employ accountants to examine the books and records of the two organizations. An order was made in April of 1963 allowing $2500 from the assets of Exchange and $2500 from the assets of Underwriters on account of costs and attorneys' fees, and further allowing $3,843.60 for accounting expenses. This order was affirmed on appeal in the McConnell case, supra, 229 Cal.App.2d 735, 40 Cal.Rptr. 587.

Extensive discovery proceedings were begun both by the Commissioner and by Exchange and Underwriters shortly after the answer and the petition to terminate conservatorship were filed and were not completed until some time after April 10, 1963. Full hearing, as required by section 1012 of the Insurance Code, was continued until June 26, 1963, at which time the original counsel moved successfully to withdraw from the case. During the period from July 8 to November 20, 1963, Exchange and Underwriters were represented by another lawyer, Richman, who also withdrew from the case. Hearing on the merits was again continued to December 9, 1963, at which time Strong appeared upon behalf of Exchange and Underwriters, and at this request, still an additional continuance was granted to February 19, 1964. Following the direction of the trial court, Exchange and Underwriters first presented their evidence on their amended petition to terminate the conservatorship, which consumed 34 court days, at the conclusion of which the court granted the Commissioner's motion for judgment, under authority of section 631.8 of the Code of Civil Procedure. The petition of Exchange and Underwriters was denied. The trial court found that Exchange at all material times was insolvent, that as of March 31, 1964, the excess of its liabilities over its assets was more than $500,000, that it understated its liabilities in its reports to the Commissioner, that Exchange and Underwriters manipulated the finances between the two organizations, resulting in serious financial detriment to Exchange, and that Exchange withheld without cause certain records from the inspection of the examiner from the Commissioner's office.

Strong filed two applications for fees, costs, and disbursements. The first was heard on February 14, 1964. In support of his application he filed solely his own declaration reciting that he had received no money from Exchange or Underwriters although he was a receive certain stock, which would be of value only if the case terminated favorably to Exchange and Underwriters. ¹ He said that he had already devoted more than 150 hours in preparation for the trial, and that he expected the trial (which had not then begun) to last from two to three months. He set out his professional background and concluded with a request that an order be made directing payment to him from the assets in the conservator's hands of interim fees in the sum of $25,000 and an additional $5,000 for costs. There were no facts stated in his declaration from which it could be concluded that continued resistance to conservatorship by Exchange and Underwriters was in good faith and reasonably justified. Unlike the fee application in McConnell, no evidence was presented that Exchange and Underwriters were advised that continued resistance was reasonable. No transcript has been brought before us to tell us what occurred at the time of the hearing on the original order to show cause, other than a minute order reciting that after a discussion 'request for attorney's fees and costs is denied without prejudice.' The second order to show cause was heard on August 14, 1964, after the cause had been heard on the merits. Again, the application is supported solely by Strong's declarations. The first declaration averred the same facts earlier presented and added a recital of the work he had done in presenting the cause for trial, the difficulties of the litigation, and the benefit he believed the court and his clients had derived from his efforts. The declaration concluded with a request for an order directing payment of $50,000 fees to him. In a supplemental declaration he said that he should receive favorable consideration because, due to his pressing demands, the...