United States v. Federal Surety Co.
| Decision Date | 20 November 1933 |
| Docket Number | No. 2157.,2157. |
| Citation | 5 F. Supp. 247 |
| Parties | UNITED STATES, to Use of COLONIAL BRICK CORPORATION et al. v. FEDERAL SURETY CO. et al. |
| Court | U.S. District Court — District of Maryland |
Raphael Walter (of Sykes, Nyburg, Goldman & Walter), of Baltimore, Md., and Leonard J. Ganse, of Washington, D. C., for plaintiffs.
William R. Semans (of Barton, Wilmer, Ambler & Barton), William D. Macmillan (of Semmes, Bowen & Semmes), and Roszel Thomsen, all of Baltimore, Md., for defendants.
This case presents a bill of complaint in equity which is described as "ancillary to and in aid of" a suit at law brought under the Hurd Act (40 USCA § 270) by and against some of the same parties and now pending in this court on the law docket. The proceeding seems to be novel and unprecedented.
The use-plaintiffs are unpaid sub-contractors of the National Contracting Corporation which undertook a government contract for construction work at Fort George G. Meade, Maryland. The defendants are:
(1) The Federal Surety Company (a corporation of Iowa now in receivership in that State), which executed the surety bond for the performance of the said contract, and its Receiver; and (2) three separate insurance companies, to wit, the London and Lancashire Indemnity Company of America; the Guardian Casualty Company, and Lloyds Insurance Company of America, who are sued as reinsurers of the Federal Surety Company.
The ultimate relief prayed for is a money decree against these re-insurers for the amount of the unpaid claims of the use-plaintiffs and to that end a discovery of the terms and conditions of the re-insurance agreements is prayed for, and also an accounting with regard to the claims of the use-plaintiffs and other creditors similarly interested.
The Federal Surety Company of Iowa is alleged to be insolvent and it appears from the papers that it has been dissolved by decree of an Iowa State Court and the Insurance Commissioner of Iowa, E. W. Clark, has been appointed its receiver. He is also in his capacity as receiver made one of the defendants to the bill. He especially appeared and moved to quash the service of summons upon him and separately upon the corporation, which service purports to have been made by a United States marshal in Iowa.
The Lloyds Insurance Company of America, a corporation of New York, one of the defendants, has answered the bill denying the existence of any re-insurance contract or other contractual relation between it and the Federal Surety Company with respect to the matters alleged in the bill. The London and Lancashire Indemnity Company of America and the Guardian Casualty Company by their separate counsel have separately appeared specially and moved to dismiss the bill for various reasons, including the following: (a) Both are corporations formed under the laws of the State of New York and neither is a citizen or resident of the State of Maryland and, therefore, the Court is without venue jurisdiction over them in this action (28 US CA § 112 (a); (b) lack of any sufficient cause of action against the defendants disclosed by the bill; (c) lack of equitable rights disclosed by the bill; (d) plaintiffs have complete and adequate remedy at law.
The bill discloses that there is already pending on the law side of this court a suit in the name of United States of America to the use of the Colonial Brick Company v. Federal Surety Company and E. W. Clark, its receiver, under 40 USCA § 270, known as the Hurd Law. The basis of the claim against the re-insurers is set out in the 5th paragraph of the bill. The substance of the allegation is that the several re-insurers (although not expressly described as re-insurers), "did enter into certain agreements with respondent, Federal Surety Company, the exact dates, terms, provisions and conditions, of which are `to your petitioner unknown,' by the terms of which agreements said London and Lancashire Indemnity Company, of America, Guardian Casualty Company, and Lloyds Casualty Company and the Federal Surety Company did undertake to apportion among themselves the liability for such loss or losses as might occur by reason of any default in the performance and completion of said public work at Fort George G. Meade, Maryland." It is further alleged that the consideration to the re-insurers was a portion of the premium paid to the Federal Surety Company for its bond and in consideration therefor the said "London and Lancashire Indemnity Company of America assumed a one-third portion of the liability for the loss or losses under said bond executed to the United States of America as aforesaid"; and similarly that the Guardian Casualty Company assumed a one-third portion and the Lloyds Casualty Company assumed a one-sixth portion of the liability.
At the hearing upon suggestion by the Court, counsel for the London and Lancashire and for the Guardian Casualty Company produced copies of the respective agreements which were accepted by plaintiffs' counsel and it was agreed the bill of complaint would be appropriately amended to adopt the said contracts so produced and to have them filed as exhibits with the bill by appropriate references therein. An examination of these contracts shows them to be the standard form of re-insurance agreement in common use by surety companies in America. Thus, in the case of the Guardian, that Company is expressly named as the re-insurer in the contract and the Federal Surety Company is named as the re-insured. The subject matter of the re-insurance contract is the ordinary simple contract of re-insurance between an insurer and its re-insurer, relating to a particular single risk, and not an assumption by the reinsurer generally of all outstanding risks of the re-insured.
Objection to the venue, made by two of the several re-insurers, is, in my opinion, well taken. 28 USCA § 112 (a) is applicable, and provides in part that:
"No civil suit shall be brought in any district court against any person by any original process or proceeding in any other district than that whereof he is an inhabitant."
The several re-insurers are all corporations of the State of New York and although some of them may have heretofore been or are doing business in Maryland as foreign corporations, they are not "inhabitants" of this district. Galveston, H. & S. A. R. Co. v. Gonzales, 151 U. S. 496, 14 S. Ct. 401, 38 L. Ed. 248; Standard Stoker Co. v. Lower (D. C. Md.) 46 F.(2d) 678, 683; Rose Fed. Practice, § 301. The return to the summons shows that none of them were served with process in Maryland but by the marshal in New York. It is true that this objection would not be good if the suit were under and authorized by 40 USCA § 270, which expressly provides that such a suit shall be "in the name of the United States in the district court of the United States in the district in which said contract was to be performed and executed, irrespective of the amount in controversy in such suit, and not elsewhere," but it has finally been authoritatively decided that a suit brought under this section is a suit at law and not a suit in equity. Illinois Surety Company v. United States, to Use of Peeler, 240 U. S. 214, 223, 36 S. Ct. 321, 60 L. Ed. 609. See, also, Davidson Bros. Marble Co. v. United States, 213 U. S. 10, 29 S. Ct. 324, 53 L. Ed. 675. Section 270 is a very special statute, conferring jurisdiction both as to subject matter and as to venue, of a very particular matter. Reading its provisions gives no indication of the legal possibility of extending its terms by construction and implication to subject re-insurers of the original surety on the bond therein mentioned to suit at the instance of sub-contractors either in the district of which they are inhabitants or in the district in which the contract was to be performed. And the plaintiff, I think, gains nothing by merely calling this equity suit one "in aid" of the suit at law, which alone is authorized by the section. It is not perceived how there can be two suits, one at law and one in equity, under this statute which expressly provides "that where suit is so instituted by a creditor or by creditors, only one action...
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