State ex rel. Insurance Co. v. Hall

• Citation: 52 S.W.2d 174
• Decision Date: 05 August 1932
• Docket Number: No. 32253.,32253.
• Parties: STATE OF MISSOURI at the Relation of MISSOURI STATE LIFE INSURANCE COMPANY, a Corporation, Relator, v. ROBERT W. HALL, Judge of Division No. 3 of the Circuit Court of the City of St. Louis, JOSEPH B. THOMPSON and MONTAGUE LYON.
• Court: United States State Supreme Court of Missouri

52 S.W.2d 174

STATE OF MISSOURI at the Relation of MISSOURI STATE LIFE INSURANCE COMPANY, a Corporation, Relator, v. ROBERT W. HALL, Judge of Division No. 3 of the Circuit Court of the City of St. Louis, JOSEPH B. THOMPSON and MONTAGUE LYON.

No. 32253.

Supreme Court of Missouri, in Banc.

August 5, 1932.

Prohibition.

PROVISIONAL RULE MADE ABSOLUTE.

Williams & Nelson, Otto & Potter, Allen May and Jourdan & English for relator.

(1) (a) Under the statutes of Missouri the power to commence such a proceeding against a life insurance company is exclusively vested in the Superintendent of the Insurance Department. R.S. 1929, secs. 5670, 5912, 5941, 5942, 5943, 5944, 5945, 5946, 5947; Koch v. Missouri-Lincoln Trust Co., 181 S.W. 44; Delaney v. Grand Lodge, 138 N.E. 918; Ulmer v. Association, 45 Atl. 32; Grimes v. Central Life Ins. Co., 188 S.W. 901; Beall v. Con. F. Ins. Co., 120 Fed. 790; Swan v. Mut. Res. Fund L. Assn., 49 N.E. 258. (b) The insurance business is a semi-public business, is subject to control and regulation by the police power of the State and the Legislature has exercised that power under the Insurance Code, by placing the conduct of the business under the supervision of the State and its public officers, restraining private actions which seek to interfere with or inquire into the management of the affairs of such company, and this Code is made for the benefit of and is essential to the protection of the policyholders and is essential to prevent the wrecking of companies by private suits indiscriminately brought. R.S. 1929, secs. 5670, 5674, 5680, 5684, 5927; Relfe v. Commercial Ins. Co., 5 Mo. App. 173; State v. Mathews, 44 Mo. 523; Equitable Life Ins. Society v. Brown, 213 U.S. 25. (c) Only corporations organized pursuant to law may do a life insurance business and private persons may not do such business. Receivers of a court are not excepted from the statutes requiring those engaged in the business of life insurance to be duly licensed and regulated. R.S. 1929, secs. 5892, 5893, 5909; State ex rel. v. Hyde, 286 S.W. 365. (2) The appointment of receivers for a corporation without notice to the corporation, without affording the corporation an opportunity to be heard, and without the hearing of evidence, is beyond the jurisdiction of a circuit court and should be prohibited by this court. State ex rel. Kopke v. Mulloy, 43 S.W. (2d) 806. (3) The proceeding upon which respondent appointed receivers was a suit for an accounting by the plaintiff therein against individually named directors. It asked no relief against the corporation, but stated that the suit was brought in behalf of relator corporation. Service of summons on such petition was not notice that a receiver might be appointed, because: (a) In a suit by a stockholder on behalf of a corporation the corporation is the beneficial plaintiff even though it be joined as a nominal defendant and is not, therefore, required to answer. 14 C.J. 938; Edwards v. Bay State Gas Co., 91 Fed. 943. (b) Judgment by default may not be rendered against a defendant on an amended pleading based on relief not included within the prayer of the original petition. R.S. 1929, sec. 1080; Phillips v. Broughton, 270 Mo. 365; White v. McFarland, 148 Mo. App. 338. (c) A defendant must be allowed a reasonable opportunity to answer an amended petition and the failure to allow such opportunity is a denial of due process of law. R.S. 1929, sec. 830; Berglar v. University City, 190 S.W. 623. (4) The amended petition in the suit brought by Jerome F. Duggan was one against directors for an accounting and reimbursement to relator for moneys alleged to have been wasted. Under the amended petition, receivership of relator corporation is not ancillary to the real relief sought, being neither necessary to the prosecution of the action against the individual directors nor necessary to enforce any judgment which may be rendered against the individual directors. The court, therefore, had no jurisdiction to appoint a receiver since such appointment was not in aid of the real controversy and of the real relief and judgment sought. Laumeier v. Sun Ray Products Co., Supreme Court of Missouri, Division No. 1, No. 30,429, decided April 2, 1932. (5) Upon the filing of the petition for removal to the United States District Court in the suit of Duggan v. Missouri State Life Insurance Company the respondent judge of the state court lost jurisdiction of the cause except to pass upon the sufficiency of the petition and bond for removal and jurisdiction of the cause became vested in the United States District Court over the whole case, which court alone has power to determine the removability, and this jurisdiction remains in the United States District Court until the cause shall be remanded in whole or in part. Donovan v. Wells, Fargo Co., 169 Fed. 363; Steamship v. Tugman, 106 U.S. 118; Hamilton v. Empire Gas & Fuel Co., 297 Fed. 429.

Stratton Shartel, Attorney-General, for respondent; G.C. Weatherby of counsel.

The laws of Missouri, Sections 5670, 5939, 5912, and 5941 to 5958 inclusive, Revised Statutes 1929, constitute the Superintendent of Insurance the potential receiver of all domestic insurance companies. Section 5941 clothes him with the power to institute suit against any domestic insurance company to enjoin it temporarily or perpetually, from transacting business, and, if necessary, to wind up its affairs, if it shall appear to him that its capital stock or guarantee fund is impaired, or that its liabilities exceed its available assets, or that its premium notes are not as required, or that it is insolvent, or that its condition is such as to render its further proceeding hazardous to the public or those holding its policies. This section authorizes him to apply for such relief and ask for such decrees as the court shall deem advisable. If a judgment of dissolution is rendered against such company Section 5947 vests him with the absolute title to all of its assets for the benefit of its creditors and policyholders. The other sections referred to set up a complete and detailed scheme for the enforcement of the provisions of said Sections 5941 and 5947, down to the reinsurance of the business and the distribution of assets. By reason of these statutes the Superintendent of Insurance necessarily becomes the real party in interest in the matter of all suits against domestic insurance companies which affect their right to conduct business in the usual manner and in suits having for their object the dissolution and winding up of their affairs. As such real party in interest his absence as the party plaintiff must be accounted for. Under the Code of Civil Procedure every action must be prosecuted in the name of the real party in interest. Sec. 698, R.S. 1929. Parties united in interest must be joined as plaintiffs or defendants. Sec. 702, R.S. 1929. If the consent of anyone who should be joined as plaintiff cannot be obtained, he may be made a defendant, the reason thereof being stated in the petition. Sec. 702, supra. The Duggan petition does not account for the absence of the Superintendent of Insurance as a party to the suit. His presence in the case as plaintiff, or his presence as a defendant accompanied by a proper and sufficient allegation in the petition explanatory of the reason why he appears as a defendant, is jurisdictional in this case for the court must take judicial notice of the statutes that make him the real party in interest. The situation is analogous to one where a stockholder of a corporation attempts to sue for the recovery of corporate funds. He can do so only when the company or its officers refuse upon request to bring the action and then the petition must allege that the officers refused after request to take action and the company must be named as a defendant. Without such averment the petition would be wholly insufficient and give the court no jurisdiction. 2 Clark on Receivers (2 Ed.) 1093-4; Zenkendorf v. Steinfeld, 225 U.S. 445.

GANTT, J.

Original proceeding in prohibition. Relator seeks to prohibit respondent judge of the Circuit Court of the City of St. Louis from enforcing an order appointing receivers for the Missouri State Life Insurance Company and to prohibit said receivers from taking charge of the assets of said company.

The order was entered in Duggan v. Missouri State Life Insurance Company et al., commenced in said court on December 14, 1931. In that case plaintiff alleged that relator was a Missouri corporation engaged in issuing policies of insurance for profit; that the eight individual defendants with four others were directors of the company; that the by-laws provided for thirteen directors but that one director died and a successor had not been elected; that he (plaintiff), a stockholder, was suing for himself and relator and all other stockholders who desired to join in the suit.

He further alleged in substance that said directors had been guilty of mismanagement and fraudulent conduct as officers of relator; that the twelve directors were divided into groups, numbering six; that each was attempting to obtain control of the business and they were engaged in a factional fight to obtain proxies from other stockholders; that said directors had made no effort to recover funds and assets lost as a result of said mismanagement and fraudulent conduct and that it would be useless to request them to do so; that they jointly controlled a majority of the stock of said corporation; that the other stockholders are scattered throughout the country, and for that reason an action could not be instituted at the direction of a majority of the stockholders.

He further alleged that about 1928 he purchased shares of stock of relator at $80 per share; that the mismanagement and fraudulent conduct of said directors caused said stock to decline on the market to $9 per share, and that said directors should be removed because of said mismanagement and...