Rowen v. LeMars Mut. Ins. Co. of Iowa

Citation230 N.W.2d 905
Decision Date25 June 1975
Docket NumberNo. 2--57051,2--57051
PartiesMarla ROWEN et al., Appellants, v. LeMARS MUTUAL INSURANCE COMPANY OF IOWA et al., Appellees.
CourtUnited States State Supreme Court of Iowa

David C. Bayne, Iowa City, and R. E. Franck, of Raun, Franck, Mundt & Nepper, Denison, for appellants.

John C. Eddy and Merrick Scott Rayle, of Whitfield, Musgrave, Selvy, Kelly & Eddy, Des Moines, for appellees-cross-appellants Iowa Mut. Ins. Co. of DeWitt, LeMars Mut. Ins. Co. of Iowa, Raymond A. Brown, William Couch, George S. Howes, John C. Howes, Carl J. Smith, Carman G. Smith, John R. Wilkinson, J. Ray Judge, D. M. Molyneaux, W. L. Rutenbeck, John Breese, and Alesch, Inc.

Paul Moser, Jr., Des Moines, for appellee Burton Dull.

Davis, Jacobs & Gaul, Sioux City, for appellees M. H. and W. K. Tappans.

Robert E. Beebe, Sioux City, for appellee M. H. Gearke.

James N. McNally, LeMars, for appellees P. G. Vander Meer and John M. Vollman.

Gleysteen, Harper, Kunze, Eidsmoe & Heidman, Sioux City, for appellees Alesch, Margaret A. Sevenich, Mary Kay Buffington, and Jane M. Warnock.

En banc.

McCORMICK, Justice.

This appeal involves jurisdictional questions in a derivative and class action by policyholders of LeMars Mutual Insurance Company of Iowa (LeMars). LeMars is a nominal defendant. The other defendants are 14 alleged corporate insiders of LeMars, 11 alleged corporate insiders of the Iowa Mutual Insurance Company of DeWitt, Iowa (DeWitt), DeWitt itself, and Alesch, Inc., an insurance agency. The trial court overruled a special appearance filed by several of the defendants but sustained motions to dismiss or motions for summary judgment filed by all defendants. Plaintiffs appeal, and the defendants whose special appearance was overruled cross-appeal. We reverse and remand on plaintiff's appeal, and we affirm on the cross-appeal.

Plaintiffs have filed a motion in this court challenging the right of counsel for certain of the individual defendants to represent at the same time the two mutual insurance companies. We sustain their motion in part and overrule it in part.

We will first resolve the question on the appeal, then the question on the cross-appeal, and, finally, the question on the motion.

These questions must be addressed in the context of a limited record. Since the action has not proceeded beyond the pleading stage, we are dealing with issues raised by allegations of the plaintiffs, not by evidence.

Plaintiffs' petition, filed in May 1973, is in four divisions. Their common allegations may be summarized as follows. Prior to April 1970 several directors of LeMars were the sole owners of Alesch, Inc., an independent insurance agency located in the city of LeMars. In February 1970, DeWitt entered an agreement with Alesch, Inc., pursuant to which DeWitt was to pay $500,000 to Alesch, Inc., to acquire ownership of Alesch, Inc., and control of LeMars. The liquid assets of Alesch, Inc., are recited in the agreement as worth $100,000. The actual value of Alesch, Inc., was $30,000, the $470,000 difference in purchase price constituting a bribe to the owners of Alesch, Inc., to deliver control of LeMars to DeWitt. The policyholders of LeMars were not given notice of the agreement. Subsequently it was carried out. The policyholders did not share in the proceeds of the sale of control. After DeWitt took control of LeMars, its representatives looted the corporation and wasted corporate assets.

Division I of the petition, a derivative claim, alleges the sale of control resulted from bribery. It includes allegations that certain annuities were granted former directors of LeMars to be paid from assets of LeMars in addition to the premiums paid for purchase of control. Division II is the class action. It is predicated on an alleged loss of equal opportunity by the LeMars policyholders to share in the consideration involved in sale of control of their corporation. Division III, a derivative claim, is predicated on the alleged wasting of LeMars assets. The claim involves payment of certain salaries and annuities, and payment of a management fee to DeWitt. Division IV, also derivative, seeks damages for alleged breach by defendants of fiduciary obligations to LeMars. Plaintiffs ask substantial actual and punitive damages for LeMars and its policyholders and for an injunction against future payments from LeMars to the other defendants.

Fourteen defendants, including LeMars and DeWitt, certain past and present directors and officers of those corporations, and certain past and present directors and officers of Alesch, Inc., filed what was denominated 'Special Appearance and Motions.' Two defendants filed motions to dismiss. The remaining defendants filed answers. After hearing, the trial court ruled that the appearance asked the court to decide questions other than its own jurisdiction and constituted a general appearance. The court treated it as a motion to stay or for dismissal. As a motion to dismiss, it was sustained on the ground that primary jurisdiction of the controversy lay with the insurance commissioner. The motions to dismiss of the other two defendants were also sustained.

The remaining defendants then moved for summary judgment on the same ground. Their motions were sustained.

I. The appeal. The special appearance, motions to dismiss, and motions for summary judgment all urged the same two jurisdictional grounds. One is the applicability of the rule of exhaustion of administrative remedies. The other is the applicability of the doctrine of primary jurisdiction. Underlying each ground is the contention that the issues raised in the petition must be presented to and decided by the insurance commissioner before the action can be maintained.

The distinction between these jurisdictional grounds lies mainly in the way each comes into play. It is explained in United States v. Western Pacific Railroad Company, 352 U.S. 59, 63--64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126, 132 (1956):

'The doctrine of primary jurisdiction, like the rule requiring exhaustion of administrative remedies, is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties. 'Exhaustion' applies where a claim is cognizable in the first instance by an administrative agency alone; judicial interference is withheld until the administrative process has run its course. 'Primary jurisdiction,' on the other hand, applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views.'

When the legislature has given an administrative agency jurisdiction to entertain the particular controversy, we have held the jurisdiction is exclusive and must be exhausted before resort to the courts unless a legislature. Northwestern Bell Tel. Co. v. legislature. Northwestern Bell Tel Co. v. Hawkeye State Tel. Co., 165 N.W.2d 771, 775--776 (Iowa 1969); Elk Run Telephone Co. v. General Telephone Co., 160 N.W.2d 311, 315 (Iowa 1968).

When the legislature has not delegated jurisdiction of the controversy to an agency but the controversy involves issues of fact not within the conventional experience of judges or implicates issues requiring the exercise of administrative discretion, the doctrine of primary jurisdiction is applicable. The court should route the threshold decision on those issues to the agency. Far East Conference v. United States, 342 U.S. 570, 574--575, 72 S.Ct. 492, 494, 96 L.Ed. 576, 582 (1952); see Weinberger v. Bentax Pharmaceuticals, 412 U.S. 645, 654, 93 S.Ct. 2488, 2494, 37 L.Ed.2d 235, 242 (1973) ('Threshold questions within the peculiar expertise of an administrative agency are appropriately routed to the agency, while the court stays its hand.'); United States v. Philadelphia Nat. Bank, 374 U.S. 321, 353, 83 S.Ct. 1715, 1736, 10 L.Ed.2d 915, 939 (1963) ('That doctrine requires judicial abstention in cases where protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.').

We must decide whether either the rule requiring exhaustion of administrative remedies or the doctrine of primary jurisdiction is applicable in this case.

A. Exhaustion of administrative remedies. The exhaustion rule is inapplicable unless two conditions are present. An administrative remedy must exist for the claimed wrong, and the statutes must expressly or impliedly require that remedy to be exhausted before resort to the courts. Oliver v. Iowa Power & Light Company, 183 N.W.2d 687 (Iowa 1971); Elk Run Telephone Co. v. General Telephone Co., supra.

The first inquiry here is whether the relief sought is within the jurisdiction of the insurance department. This requires identification of the claims and then examination of the statutory scheme establishing the insurance department to see whether the insurance department has power to adjudicate them.

The petition alleges a series of torts by corporate insiders. Plaintiffs ask actual and punitive damages in behalf of LeMars and its policyholders, as well as injunctive relief. The action relies on traditional common-law principles establishing the duties of corprate insiders and providing derivative and class action redress when those duties are breached. See, generally, Holi-Rest, Inc., v. Treloar, 217 N.W.2d 517 (Iowa 1974); Holden v. Construction Machinery Company, 202 N.W.2d 348 (Iowa 1972); Charles v. Epperson & Co., Inc., 258 Iowa 409, 137 N.W.2d 605 (1965); Gord v. Iowana Farms Milk Co., 245 Iowa 1, 60 N.W.2d 820 (1953), and citations.

The relevant insurance statutes ae chapters 505, 515, and 521A, The Code. Insurance department regulations, chapter 11, 1973 Iowa Departmental Rules at 558--564,...

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