Sylvander v. Taber

• Decision Date: 15 April 1959
• Citation: 188 N.Y.S.2d 368,19 Misc.2d 1005
• Parties: Earl C. SYLVANDER et al. v. Louis J. TABER et al.
• Court: New York Supreme Court

Page 368

188 N.Y.S.2d 368

19 Misc.2d 1005

Earl C. SYLVANDER et al. v. Louis J. TABER et al.

Supreme Court, Onondaga County.

April 15, 1959.

Smith & Sovik, Syracuse, for plaintiff.

Hancock, Dorr, Ryan & Shove, Syracuse, for defendants.

Louis J. Lefkowitz, Atty. Gen. (Samuel A. Hirshowitz, First Asst. Atty. Gen., George K. Bernstein, Deputy Asst. Atty. Gen., and Philip Weinberg, Sp. Asst. Atty. Gen., of counsel), appearing pursuant to Executive Law § 71.

WILLIAM E. McCLUSKY, Justice.

This is an action for a declaratory judgment. The amended complaint herein sets forth some seven causes of action in sixty-four numbered paragraphs. Neither the amended complaint nor the answer are notable examples of conciseness. But the general purport of the complaint is to secure a declaration that section 199 of the Insurance Law of this state, insofar as it is sought to be applied to the stockholders of the Farmers and Traders Life Insurance Company, is unconstitutional.

The problems involved in this litigation have been before the courts since 1953. The various phases are revealed in Young v. Taber, 284 App.Div. 829, 132 N.Y.S.2d 431, affirmed 308 N.Y. 687, 124 N.E.2d 322; In re Farmers & Traders Life Insurance Company (Young), 285 App.Div. 1117, 141 N.Y.S.2d 514; Young v. Farmers & Traders Life Ins. Co., 306 N.Y. 888, 119 N.E.2d 591 and Sylvander, etc. v. Taber, 6 App.Div.2d 987, 176 N.Y.S.2d 50. The sequel of the action of Young v. Taber, supra, was an order by this Court entered March 11, 1959 dismissing that action for failure to prosecute for several years.

The background of the matters which form the basis of this action reach back into legal history. The Supreme Court of the United States ruled in the case of Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 4 L.Ed. 629, that a state cannot impair the obligations of a contract. The contract therein was the charter granted by the State of New Hampshire to the College. The charter or the law under which it was granted must contain the reservation of the power to alter or amend or revoke. Following that decision the constitutions of the various states contained such a reservation. Article X, section 1, Constitution of 1938. The section in question provides for the formation of corporations under general laws. The pertinent clause reads as follows:

'All general laws and special acts passed pursuant to this section may be altered from time to time or repealed.'

That same provision was in the constitution of 1894 (Article VIII, section 1). That was the constitution in effect when the Insurance Law herein questioned was enacted.

In the latter part of 1912, pursuant to the provisions of the Insurance Law of 1909, The Farmers National Life Insurance Company was incorporated. Its authorized capital stock was two hundred thousand dollars with an issue of two thousand shares of the par value of one hundred dollars each. It was to engage in the business of writing nonparticipating life insurance policies or annuities.

Later and in August 1914 an application was made to the Supreme Court for an order to change its name to The Farmers and Traders Life Insurance Company. The order then granted provided for the change of name to become effective on September 17, 1914. It is still known by the name then adopted.

Some time later in the year 1919 further amendments to the charter took place. One not pertinent to the causes herein related to the classification and election of directors. The second one dealt with a proposed increase in the amount of capital stock from two hundred thousand dollars to three hundred thousand dollars and in number from two thousand to three thousand, the par value remaining the same. This was finally achieved October 15, 1919. It is worthy of note that one of the prime movers in all these changes was one Thomas O. Young, father of John O. Young, one of the plaintiffs herein and one of the individuals from whom John O. Young secured the stock he presently possesses.

Thereafter and on or about August 1922 a further change was made in that the charter was amended to extend the field and type of policies to be issued.

In January 1953 a voting trust agreement was entered into between some of the present defendants for the purpose of soliciting stockholders of the company to endeavor to convert the corporation from a stock company to a mutual life insurance company pursuant to section 199 of the Insurance Law. The effect of the decision in Young v. Taber, supra, was an affirmation of the validity of the voting trust agreement. The legal effect has become a factual admission by the stipulation entered into prior to the trial herein.

Section 199 of the Insurance Law in subsection 2 thereof provides for mutualization. Four approvals must be obtained before any mutualization plan may become effective. First, it must be approved by a majority vote of the board of directors, secondly, the plan must be approved by a majority vote of the outstanding capital stock at a meeting of the stockholders called for that purpose, thirdly, the plan must have been approved by a majority of the policyholders eligible, i. e. who have had a policy for at least one thousand dollars and which has been in force for at least one year before the voting date, and who are present either in person or proxy and vote or vote by mail, fourthly, the plan shall have been submitted to the Superintendent of Insurance of this state and shall have been approved as to conformity with the requirements of the chapter and not prejudicial to the policyholders and the insuring public. There are other specific features, detailing further procedures which are not pertinent in this stage of our examination. Admittedly a majority vote of the board of directors in favor of the plan was cast at a special meeting of the board called for that purpose on May 15, 1954. Thereafter a special meeting of the stockholders was held on July 19, 1954 to discuss the plan. A majority of the stockholders voted in favor of the plan. The present plaintiffs Earl C. Sylvander, Margaret C. Sylvander and John O. Young participated in the meeting and voted against the plan.

The next step was the approval by the policyholders. There were about fifty thousand at the time. Upon the voting day seven thousand seven hundred and four eligible policyholders were present and seven thousand and ninety-eight voted in favor of the plan and six hundred and six voted against it.

On September 14, 1954, the Corporation submitted the plan to the Superintendent of Insurance for his approval. On October 11, 1954, John O. Young as a policyholder and stockholder and the Sylvanders as stockholders appeared by attorneys and filed objections to the plan. A lengthy hearing was held before one of the Deputy Superintendents, deputized for the purpose. It is again worthy of note that three of the plaintiffs who maintain the unconstitutionality of section 199 of the Insurance Law vigorously participated in the processes and procedures of that very section. After a lengthy hearing upon the subject the Superintendent of Insurance approved the plan of mutualization on November 15, 1954 in accordance with the required procedure.

The plan of mutualization provided that upon complying with the formal requirements of section 199 aforesaid the stockholders would each receive one thousand dollars for each share of stock surrendered to the mutualization trustees, named in the plan, in installments. A mutualization certificate would be issued to each stockholder surrendering his stock. Provision was made for the payment of an initial sum of two hundred dollars and the payment of the balance over a period of about ten years. Interest upon the balances was to be paid at the rate of three percent per annum. The funds to meet the commitments were to be derived from the accumulated net earnings of the non-participating business only. The accumulated net earnings 'as defined' 'shall be the surplus to policyholders as reported in the Company's annual statement as of December 31, 1953 plus the net earnings on non-participating business thereafter less any principal payments made to the stockholders.' The manner in which net earnings on non-participating policies was to be determined was set up in detail.

From the evidence submitted, it appears that Earl C. Sylvander is the holder at this time of seventy-nine shares of stock acquired at intervals from June 10, 1953 up to August 2, 1957 at prices ranging from about $200.00 per share up to in excess of $1,000.00 per share. His wife and co-plaintiff was and is the owner of two shares acquired June 10, 1953. Saydie H. Terry is the owner of two shares purchased November 22, 1944. John O. Young is the owner of seventy-four shares of stock acquired between January 19, 1934 and April 15, 1953. Most of his stock was acquired through two estates, wherein the stock in question was valued at about two hundred and twenty dollars per share. The number of shares surrendered to the trustees amounted to two thousand seven hundred and eighty-four but the plaintiffs own in excess of five percent of the stock. The plaintiffs have executed a voting and sale trust agreement designating as irrevocable proxies Lawrence Sovik (not the named plaintiff) and Harlow Ansell.

Summary statements of the business of the Company are in evidence. They reflect the expected condition upon the transition from non-participating to participating policies. The fund set aside to pay off the surrendered stock under the mutualization plan has likewise increased.

During the course of the trial, objections were made to the statements and exhibits offered. To facilitate the trial, the Court reserved decision upon the objections interposed. The objection to statement 14 setting forth the number of policyholders at the time of mutualization is overruled.

An objection was interposed as to the materiality and relevancy of statement No. 8 with...