United Ins. Co. of Chicago, Ill. v. Maloney

• Decision Date: 18 August 1954
• Citation: 127 Cal.App.2d 155,273 P.2d 579
• Court: California Court of Appeals Court of Appeals
• Parties: UNITED INS. CO. OF CHICAGO, ILL. et al. v. MALONEY. Civ. 15946.

Page 579

273 P.2d 579

127 Cal.App.2d 155

UNITED INS. CO. OF CHICAGO, ILL. et al. v. MALONEY.

Civ. 15946.

District Court of Appeal, First District, Division 1, California.

Aug. 18, 1954.

Rehearing Denied Sept. 17, 1954.

Hearing Denied Oct. 13, 1954.

Jesse H. Steinhart, John J., Goldberg and Neil E. Falconer, San Francisco, for respondents.

Edmund G. Brown, Atty. Gen., Harold B. Haas, Deputy Atty. Gen., for appellnt.

BRAY, Justice.

Appeal from an order of the superior court granting a preliminary injunction restraining defendant pendente lite from proceeding to hear certain accusations against plaintiffs.

Question Presented.

Does the rule of exhaustion of administrative remedies apply?

Record.

Accusations were filed with the California Insurance Commissioner charging United Insurance Company and its California general agents, the individual plaintiffs, with misrepresentations in the sale of its commercial disability (sickness and health) insurance policies, and doing business in bad faith. The particular charges resolve themselves into a claim that in its advertisements, circulars and in the representations by the agents the policies are represented as covering all sickness and health and no mention is made of the exceptions. The accused filed notice of defense. A hearing was set and continued on two occasions at their request. Then the accused, respondents here, brought a proceeding in the superior court to restrain appellant from proceeding with the hearings, on the ground primarily that the same types of representations have been used by similar companies in California for many years and still are; that the contents of the literature had been discussed with the commissioner's office and not objected to; that no similar accusations had been filed against any other insurance company, with one exception; that the commissioner did not intend to file against any other company; that the commissioner knowingly and intentionally was discriminating against respondents, thereby depriving them of due process and equal protection of the law. Allegations of irreparable damage already accrued and to accrue if the hearing is had, are made. The trial court upon the records and affidavits granted a preliminary injunction. This appeal is from the order granting such injunction.

Contentions.

It is conceded that an intentional and knowing discrimination in the enforcement of an otherwise valid law, if it existed, would be a violation of the equal protection clause of 14th amendment of the United States Constitution. See Yick Wo v. Hopkins, 1886, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220, 227.

Defendant contends that before plaintiffs may resort to the courts for injunctive relief to prevent the commissioner from hearing said accusations, plaintiffs must exhaust their administrative remedies, one of which is to present at the hearing their defense based on the claimed discrimination. Plaintiffs are doubtful if such defense may be presented before the commissioner, but, in any event, contend that there is an exception to the general rule requiring the exhaustion of administrative remedies where irreparable damage is threatened by invalid and illegal administrative action.

Administrative Remedy Rule.

We entertain no doubt that the claim of intentional discriminatory application of the law is a defense which properly may be presented to an administrative officer in an accusatory proceeding. See Security-First Nat. Bk. v. County of Los Angeles, 35 Cal.2d 319, 217 P.2d 946, and cases there cited holding that a taxpayer seeking judicial relief from an erroneous assessment must have exhausted his remedies before the administrative body empowered initially to correct the error, even though he claims that the tax is discriminatory in violation of constitutional mandates. Section 11506, Government Code, dealing with procedure in such matters, states that in the notice of defense to the accusation the person accused may 'Present new matter by way of defense.' A charge of unconstitutional action goes to the very jurisdiction of the administrative officer or body to entertain the proceeding and hence is a matter which he or it must consider and decide at the outset of the proceeding. See Abelleira v. District Court of Appeal, 17 Cal.2d 280, 303, 109 P.2d 942, 132 A.L.R. 715.

The general rule requiring exhaustion of administrative remedies before equitable relief can be granted is well established. There are innumerable federal and state authorities upholding the rule. As said in Abelleira v. District Court of Appeal, supra, 17 Cal.2d 280, 292, 109 P.2d 942, 949, 'The California cases have consistently applied this settled rule.' See that case for a long list of cases on the subject. Among the many California cases following the rule are United States v. Superior Court, 19 Cal.2d 189, 120 P.2d 26; Brock v. Superior Court, 109 Cal.App.2d 594, 241 P.2d 283; Security-First Nat. Bank v. County of Los Angeles, supra, 35 Cal.2d 319, 217 P.2d 946; Woodard v. Broadway Fed. Savings & Loan Ass'n, 111 Cal.App.2d 218, 244 P.2d 467; Blake v. Public Utilities Commission, 120 Cal.App.2d 671, 261 P.2d 773.

The exception to the rule which exception plaintiffs would apply in this case is the one referred to, but not applied in Abelleira v. District Court of Appeal, supra, 17 Cal.2d 280, 109 P.2d 942, and United States v. Superior Court, supra, 19 Cal.2d 189, 120 P.2d 26. That exception is to the effect that injunctive relief may be granted against invalid administrative action if irreparable damage will occur if the person affected were required to exhaust his administrative remedies. An example of the application of the exception is given in Abelleira v. District Court of Appeal, supra, 17 Cal.2d 280, at page 296, 109 P.2d 942, where the court points out that where an administrative body imposes a confiscatory rate on a public utility, the continued operation of the business at the rate imposed pending an appeal might in some instances be so unprofitable as to amount to a destruction of the business and therefore taking property without due process of law. The courts in such cases issue injunctions to stay the enforcement of the new rate until a final determination of its validity, in order to protect the constitutional rights of the petitioning utilities. However, in all the cases cited by counsel or which we have been able to find on the subject, there are none in which the type of action taken by the administrative body was merely setting an accusation or other matter for hearing nor was the type of injury which may result to a person from the fact of a hearing one which was considered as the irreparable injury necessary for the application of the exception. Thus, the cases seem to require for its application some action by the administrative body more than setting a matter for hearing, and some injury more than that caused by the fact of hearing, and the only cases discussing the attempted application of the exception to hearings flatly hold that the latter do not come within the exception. In Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638, cited in the Abelleira case, supra, 17 Cal.2d at page 292, 109 P.2d 942, a complaint had been filed by the National Labor Relations Board against an employer charged to be engaged in unfair practices prohibited by the National Labor Relations Act, 29 U.S.C.A. § 151 et seq. In reversing the decree of the District Court, 15 F.Supp. 915, which had been affirmed by the Circuit Court of Appeals for the First Circuit, 88 F.2d 154, the Supreme Court referred to the fact that the employer contended that it was not engaged in the type of commerce that would bring it within the act and that as is claimed by plaintiffs here, a hearing on the charges would subject it to irreparable damage violating rights guaranteed by the federal Constitution. The court then said 303 U.S. at pages 50-52, 58 S.Ct. at pages 463-464: 'The contention is at war with the long-settled rule of judicial administration that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted. That rule has been repeatedly acted on in cases where, as here, the contention is made that the administrative body lacked power over the subject matter.

'Obviously, the rule requiring exhaustion of the administrative remedy cannot be circumvented by asserting that the charge on which the complaint rests is groundless and that the mere holding of the prescribed administrative hearing would result in irreparable damage. Lawsuits also often prove to have been groundless; but no way has been discovered of relieving a defendant from the necessity of a trial to establish the fact.'

In a footnote, 303 U.S. at pages 51-52, 58 S.Ct. 459, the court cites the following cases holding that the sort of injury or damage done to an employer's business by the holding of hearings by the National Labor Relations Board is not the type of irreparable injury permitting equitable interference with the administrative process; Clark v. Lindemann & Hoverson Co., 7 Cir., 88 F.2d 59; Bradley Lumber Co. of Arkansas v. National Labor Relations Board, 5 Cir., 84 F.2d 97; Heller Bros. Co. v. Lind, 66 App.D.C. 306, 86 F.2d 862; Richmond Hosiery Mills v. Camp, 5 Cir., 74 F.2d 200.

In Fed. Power Comm. v. Metropolitan Edison Co., 304 U.S. 375, at page 385, 58 S.Ct. 963, 968, 82 L.Ed. 1408, the court said: 'So, attempts to enjoin administrative hearings because of a supposed or threatened injury, and thus obtain judicial relief before the prescribed administrative remedy has been exhausted, have been held to be at war with the long-settled rule of judicial administration.'

In Chamber of Commerce of Minneapolis v. Federal Trade Commission, 8 Cir., 280 F. 45, at pages 48-49, an action in the Circuit Court of Appeals for an order requiring the Federal Trade Commission to...