Salamandra Ins. Co. v. New York Life Ins. & Trust Co.

• Decision Date: 16 December 1918
• Citation: 254 F. 852
• Parties: SALAMANDRA INS. CO. v. NEW YORK LIFE INS. & TRUST CO.
• Court: U.S. District Court — Southern District of New York

254 F. 852

SALAMANDRA INS. CO. v. NEW YORK LIFE INS. & TRUST CO.

United States District Court, S.D. New York.

December 16, 1918

Charles A. Towne, Leon O. Bailey, and William S. Thomson, all of New York City, for complainant.

Emmet &amp Parish, of New York City, for defendant.

Francis G. Caffey, U.S. Atty., of New York City (Earl B. Barnes Asst. U.S. Atty., of New York City, and Lee C. Bradley General Counsel to Alien Property Custodian, of counsel) amicus curiae.

KNOX District Judge.

This is a motion to make permanent, pendente lite, the injunction issued herein upon November 4, 1918, wherein the defendant was restrained from paying to A. Mitchell Palmer, as Alien Property Custodian, certain funds in the hands of the defendant, and for which funds the said custodian made formal demand upon the defendant upon October 15, 1918.

The complainant is a fire insurance company organized under the laws of Russia, and since 1899 has been engaged in the business of writing fire insurance within the United States. Pursuant to the provisions of the law of the state of New York, the complainant had deposited with the defendant cash and securities of the approximate value of $500,000. This sum has fluctuated in a manner dependent upon the amount of insurance from time to time in force and the losses sustained upon the risks of the complainant. At the present time the defendant, as trustee under a deed of trust executed by the complainant, holds the sum of about $4,072,787.89 in cash and securities for the purpose of securing the complainant's liabilities to its policy holders. The last-mentioned amount includes the sum of $115,013.19 which is the subject-matter of this litigation; said sum having been deposited with the said defendant in July, 1918.

Ever since the complainant engaged in business in the United States, and until October 29, 1916, the complainant was represented, by way of general agents, by the copartnership of H. Mutzenbecher, Jr., which copartnership it is admitted is a German concern, and consequently takes on the character of an enemy. This copartnership received by way of compensation for its services in the United States 3 1/2 per cent. of the net premiums on business written in this country, which compensation was paid from Petrograd.

From 1899 to 1913 a local firm, in which William G. Willcox and William Y. Wemple were members, acted within the United States as agents of the complainant. This firm, however, received its compensation from the general agent of the company, viz. H. Mutzenbecher, Jr. In March, 1913, Meinel & Wemple, Incorporated, became the local agents of the complainant, and for its services received, by direct remittance from the Mutzenbecher firm, a commission of three-fourths of 1 per cent. of the net premium income of the complainant in the United States, together with the expenses incurred by Meinel & Wemple, Incorporated; the amount of said commissions being payable out of the sum of 3 1/2 per cent. of said premiums earned by and paid to the firm of Mutzenbecher, Jr.

About October 29, 1916, the Russian government being then at war with the Imperial German government, there was promulgated at Petrograd an edict or ukase forbidding business relations between subjects of the Russian government and those of Germany, whereupon the complainant undertook to cancel the agency agreement of Mutzenbecher, Jr. Thereupon Meinel & Wemple, Incorporated, were forwarded an agency contract by the complainant, under which Meinel & Wemple, Incorporated, should, if the contract were accepted, become the complainant's agent and manager within the United States, and should, for its services, receive commissions of 3 1/2 per cent. based upon the net premiums, which it will be borne in mind is the same rate of commissions formerly paid to Mutzenbecher, Jr.

This contract, which was accepted by Meinel & Wemple, Incorporated, also required that concern to do all the work formerly done by Mutzenbecher, Jr., and this involved, if the work was to be done, the purchase of insurance maps, the keeping of records, etc., formerly possessed and kept by Mutzenbecher, Jr. These consequent expenses, if incurred, would involve a considerable outlay.

Owing to the uncertainty of conditions in Russia, Meinel & Wemple, Incorporated, acted upon the theory that such expenditures were not presently necessary, and, having a contract which provided for additional services, endeavored to communicate with the home office of the complainant with a view of modifying the contract. While awaiting a response to these communications, Meinel & Wemple, Incorporated, deducted from the net premiums of the complainant 2 1/2 per cent. thereof, and deposited said sum in the name of Meinel & Wemple, Incorporated, and from said account paid, monthly, to itself, three-fourths of 1 per cent. of said net premiums, together with the expenses incurred. In other words, Meinel & Wemple, Incorporated, received compensation at the same rate previously received by it during the life of the Mutzenbecher, Jr., agency; it being the expectation of Meinel & Wemple, Incorporated, that the balance of said commissions, calculated at the rate of 2 1/2 per cent., should, after the deductions referred to, be permitted to accumulate, to the end that it might form a fund from which to purchase the equipment, etc., contemplated by the agency agreement between the complainant and Meinel & Wemple, Incorporated. This disposition, however, was contingent upon the approval of the complainant, which might request the payment of such balance to it.

In passing, it may be remarked that upon January 5, 1917, H. Mutzenbecher, Jr., cabled Meinel & Wemple, Incorporated, assenting to the execution by that concern of the American agency agreement. It is also asserted that since October 31, 1916, the German concern of Mutzenbecher has had nothing to do with the complainant's affairs, that said German firm has received, not only all the moneys to which it was entitled as of October 31, 1916, but in addition thereto an overpayment of $4,100.

No further word has been received from the complainant with respect to the Meinel & Wemple, Incorporated, contract, and the last-mentioned corporation has accordingly continued to represent the complainant, setting aside the said 2 1/2 per cent., and deducting the said commission of three-fourths of 1 per cent. and expenses. The balance remaining constitutes the said sum of $115,013.19 which the Custodian demands as being enemy alien owned property.

The foregoing, in a general way, represents the situation as presented by the bill and the complainant's affidavits, and to the allegations so made there is nothing before me to show the contrary, saving and excepting the formal demand of the Custodian, wherein it appears that--

'I, A. Mitchell Palmer, Alien Property Custodian, * * * after investigation, do determine that the following money and other property * * * belong to and are by you held for, on account of, or for the benefit of H. Mutzenbecher, Jr., whose address is Hamburg, Germany, and whom, after investigation, I determine to be an enemy, not holding a license granted by the President. * * * '

It appears that in June, 1918, the Custodian, through one of his agents, began an investigation of the office of Meinel & Wemple, Incorporated, for the purpose of ascertaining if said corporation held any enemy owned funds or property. Upon the completion of the inquiry it was suggested that the fund of $115,013.19 had been set aside for H. Mutzenbecher, Jr., and that there was a secret agreement or understanding whereby the fund would be turned over to Mutzenbecher, Jr., at the end of the war.

Upon the expression of such conclusion, Meinel & Wemple, Incorporated, placed at the disposal of the Custodian all of its books and papers and the statements of its managing officers, and said corporation also notified the Custodian that it felt it its duty to the complainant to turn the fund in question into the account held by the defendant under the trust agreement hereinbefore referred to.

No answer being received to this communication addressed to the Custodian, Meinel & Wemple, Incorporated, did deposit the fund with the defendant pursuant to the permissive terms of said trust agreement. It may be remarked that, so far as I am informed, the only provision of law which by any construction could require such disposition of the fund is section 38 of the Insurance Law of the state of New York (Consol. Laws, c. 28), which provides:

'Every person appointed or acting in this state as agent of any insurance corporation, who receives or collects any moneys as such agent, shall be responsible in a trust or fiduciary capacity to such corporation therefor.'

It is my judgment that this provision of law did not make it incumbent upon Meinel & Wemple, Incorporated, to dispose of the fund in the manner in which it has been disposed of.

I am also of opinion that, granting for the moment that the determination of the Alien Property Custodian is correct as to the alien character of the fund in question (which fact I do not find), such alien character is not divested by reason of the mixing of the fund with another fund which unquestionably is impressed with a trust for the benefit of American policyholders of the complainant. A voluntary and gratuitous increase of a trust fund will not be permitted to continue to the prejudice of a third party, when the fund is of such nature that the voluntary and gratuitous increase may be followed and segregated, all without the diminution or impairment of any security theretofore held for the benefit of the cestuis que trustent of the original fund. A tainted fund may not be given immunity from the penalties...