Waybright v. Columbian Mut. Life Ins. Co.

• Decision Date: 11 December 1939
• Docket Number: No. 36.,36.
• Citation: 30 F. Supp. 885
• Parties: WAYBRIGHT et al. v. COLUMBIAN MUT. LIFE INS. CO.
• Court: U.S. District Court — Western District of Tennessee

30 F. Supp. 885

WAYBRIGHT et al. v. COLUMBIAN MUT. LIFE INS. CO.

No. 36.

District Court, W. D. Tennessee, W. D.

December 11, 1939.

Charles G. Revelle, of Los Angeles, Cal., and Hillsman Taylor, of Memphis, Tenn., for plaintiffs.

J. Morgan Stevens, of Jackson, Miss., and Scott Fitzhugh, of Memphis, Tenn., for defendant.

MARTIN, District Judge.

Should the plea of res adjudicata, set up in the answer of the defendant, be sustained?

The complaint was filed by citizens of Florida, Louisiana, Texas and Alabama against an insurance company, organized under the laws of Mississippi but with its main office, records and assets in Memphis, Tennessee, in this judicial district of the United States.

The suit is a class action brought by plaintiffs in behalf of themselves and all others holding fraternal or beneficiary covenants and certificates originally issued by the Eminent Household of Columbian Woodmen, or the Columbian Woodmen of Mississippi, or the Columbian Mutual Life Assurance Society, all ultimately merged and converted into the defendant company.

Complaint is made that on March 16, 1937, an illegal assessment and lien of one hundred per cent of the life reserve, less indebtedness, was declared by the insurance company against the fraternal policy holders in contravention of their rights expressly recognized on August 9, 1926, when the defendant company was converted from a fraternal benefit society into a mutual life and disability insurance company.

The bill of complaint charges:

"That the provisions of the amendment to the Articles of Incorporation converting said Fraternal Society to a mutual life company created and made all persons then holding fraternal covenants a separate and distinct class with no change whatever in their rights, duties, or obligations as determined by their covenants issued prior to the approval of said amendment and by the Constitution of the Fraternal Society and the laws governing the same, but with no further power or authority to continue to write fraternal covenants or to further continue business operations except to have their business and affairs managed, conducted and gradually and eventually liquidated by the Directors of the Mutual Company, and that upon said conversion and at all times thereafter, the said Columbian Mutual Life Insurance Company and its Officers and Directors became and were Trustees for the beneficiary covenant holders as a class, and it became and was the duty of such Officers and Directors of said mutual company to thereafter keep and maintain a separate and distinct account of the funds, credits, property, assets, payments, and contributions of the fraternal covenant holders and to keep and maintain separate books thereon and of the income from the assets, payments, and contributions of the covenant holders and of the operating and management, cost and expense of the business and affairs of the covenant holders and to equitably distribute and pro-rate the expenses of the company between the covenant holders and the mutual policy holders and to entirely segregate and keep and maintain separate the affairs and business of the covenant holders as one class and the mutual policy holders as another class, and not to mingle the funds, assets, business and affairs of the two classes and to use and apply the assets, funds, and payments of the covenant holders only to and for the use and benefit of the covenant holders and not to apply or use any of such assets, funds, and payments for the use or benefit of the mutual members or for the operation or management of the business affairs of the mutual policy holders or for the cost or expense of obtaining new and additional mutual members, and not to apply or use any part of the assets, funds, payments, and contributions of the covenant holders except for the payment of claims on beneficiary covenants and accumulating the required reserve on the covenants and meeting and paying the reasonable cost and expense of managing and handling the affairs of the covenant holders.

"That in total disregard and violation of such duty, said Officers and Directors have wrongfully and unlawfully mingled the assets, funds, contributions and payments of the covenant holders with the assets, funds, and payments of the mutual members and have wrongfully and unlawfully misused and misapplied the assets, funds, payments and contributions belonging to and paid in by the beneficiary covenant holders and have wrongfully appropriated, used, and applied such assets, funds, payments and contributions to uses and purposes other than for and in behalf of the covenant holders and have wrongfully misappropriated same to the uses, benefits, and purposes of the mutual members and of the mutual company and to the cost and expense of the management, control, operation and development of the business and affairs of the mutual members and the mutual company, and to meeting and taking care of deficits and impairments in the assets and financial condition of the mutual members."

The plaintiffs pray for a production of the books of the company in this proceeding, and for a complete accounting and that "in such accounting the funds, assets, property, payments and experiences of the covenant holders be separated from those of the mutual policy holders and the mutual company, and that same be credited solely and exclusively to the covenant holders and that defendant be required to account fully to the covenant holders for all assets. funds, and property transferred to it on the 9th day of August, 1926, and for all payments and contributions made since that date by the covenant holders and for all profits, earnings received therefrom and thereon and for all disbursements and expenditures made for and in their behalf."

It is further prayed that the assessment and lien made and declared on March 16, 1937, be held "discriminatory, unauthorized, illegal, excessive and invalid"; or, if not, that such assessment with interest thereon "be declared the sole and exclusive asset of the covenant holders and that it be credited exclusively to the funds and assets of the covenant holders and be held, used, and applied from time to time for their sole use and benefit, to be handled, applied, disbursed, distributed and reduced from time to time as the laws and financial condition of the covenant holders warrant and that no part thereof be credited to or used for any other purpose nor for the use or benefit of any other person or persons."

The defendant company, in its answer, pleads res adjudicata, elaborating in descriptive detail the issues involved and the applicable Mississippi statutes and the material resolutions and pertinent charter and by-law provisions considered in the case of Walter D. Garland et al. v. Columbian Mutual Life Insurance Company, No. 42370 R.D., in the Chancery Court of Shelby County, Tennessee, in which the decree of the Chancellor dismissing the bill was affirmed by the Supreme Court of Tennessee.¹

The opinions and decrees of both the trial court and the appellate court, and the entire record in the state court proceeding are exhibited with defendant's answer, and it is averred that "said bill, being a class bill, has fully bound plaintiffs upon all the issues therein presented, which clearly made, or necessarily included all the issues which are now involved in the present suit, as if said plaintiffs and all other holders of fraternal covenants or certificates had been expressly named as parties complainant to said bill."

The Supreme Court of Tennessee in its unpublished opinion in the Garland case, supra, undoubtedly considered the state Chancery suit to be a class suit, for the Court said: "Complainants are not here seeking individual relief, but are suing as a class seeking to avoid the assessment made by the Board of Directors pursuant to administrative findings made by the Insurance Commissioner of Mississippi and concurred in by the Insurance Commissioners of Tennessee and Alabama."

The right to bring class suits is recognized in Tennessee (McCaleb v. Crichfield, 52 Tenn. 288, 5 Heisk. 288; Finney v. Garner, 110 Tenn. 67, 71 S.W. 592); and also by the Supreme Court of the United States (Smith v. Swormstedt, 16 How. 288, 289, 14 L.Ed. 942); formerly by Equity Rule 38, 28 U.S.C.A. following section 723, and now by Rule 23, Rules of Civil Procedure, for District Courts, 28 U.S.C.A. following section 723c; and by numerous decisions.

A quite relevant class suit, Hartford Life Insurance Company v. Ibs, 237 U.S. 662, 672, 35 S.Ct. 692, 696, 59 L.Ed. 1165, L. R.A.1916A, 765, quotes with approval from Smith v. Swormstedt, 16 How. 288, 303, 14 L.Ed. 942, supra: "Where the parties interested in the suit are numerous, their rights and liabilities are so subject to change and fluctuation by death or otherwise, that it would not be possible, without very great inconvenience, to make all of them parties, and would oftentimes prevent the prosecution of the suit to a hearing. For convenience, therefore, and to prevent a failure of justice, a court of equity permits a portion of the parties in interest to represent the entire body, and the decree binds all of them the same as if all were before the court. The legal and equitable rights and liabilities of all being before the court by representation, and especially where the subject-matter of the suit is common to all, there can be very little danger but that the interest of all will be properly protected and maintained." This language is also quoted in Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356, at page 363, 41 S.Ct. 338, 65 L.Ed. 673, infra.

In the Ibs case, the Supreme Court cites Hawkins v. Glenn, 131 U.S. 319, 330, 9 S.Ct. 739, 33 L.Ed. 184, 191; Beals v. Illinois, etc., R. Co., 133 U.S. 290, 10 S.Ct. 314, 33 L.Ed. 608; Kerrison v. Stewart, 93 U.S. 155, 23 L.Ed. 843; Supreme Council of Royal Arcanum v. Green, 237 U.S. 531, 35 S.Ct. 724, 59 L.Ed. 1089, L.R.A.1916A, 771,...