Source: https://supreme.justia.com/cases/federal/us/213/25/
Timestamp: 2019-04-22 17:59:27+00:00

Document:
A life insurance company which has several hundred thousand policyholders is in its nature a public institution, and where there is no apprehension as to its solvency, a court of equity will consider all the facts as to the relative advantages and disadvantages of a receivership or accounting before granting relief of that nature in the suit of an individual policyholder even if jurisdiction to grant such relief exists.
The fact that stockholders claim the surplus of an insurance company and the officers of the company do not actively deny the claim gives no ground for a receivership at the suit of a policyholder claiming that the surplus belongs to the policyholders.
A demurrer only admit facts well pleaded in the pleading demurred to; it does not admit the pleader's conclusions of law or the correctness of his opinions as to future results.
The construction of a general act and a charter granted thereunder pertain to the state court just as if the charter were granted by a special act, and in a suit by the holder of a policy, executed at the home office, the meaning and construction of the charter as held by the state court will be binding on the federal courts, and, in the absence of any federal question, the construction of the contract by the state court will be of most persuasive influence even if not of binding force.
The wrongdoing of former officers of an insurance company, and their continuance in power, in the absence of any trust relation, gives no jurisdiction for an accounting in equity in a suit in which the company is the only defendant as between a simple debtor and creditor.
The Equitable Life Assurance Society is not a trustee of its policyholders under its charter and policies as the same have been construed by the highest courts of the New York.
As the charter and contract have been construed by the highest court of New York, a policyholder in the Equitable Life Assurance Society can only participate in the surplus of the society according to the terms of the policy, and a discretion rests with the officers of the society as to what amount of surplus shall be retained and distributed, and when the distribution shall be made.
While wrongdoing, waste, and misapplication of funds reducing the surplus of an insurance company before distribution might give ground of action to a policyholder, it would not necessarily, where there is no allegation of insolvency, give ground for equitable action.
Where the bill avers solvency of defendant at present, a prediction of insolvency in the future on account of inability to meet claims of policyholders by reason of mismanagement is a mere conclusion of law, and not a fact which is admitted by demurrer or on which a court can grant equitable relief.
Where a suit for accounting by a policyholder against an insurance company as sole defendant avers that the stockholders claim to own the surplus, no decree can be made as to such ownership without the presence of the stockholders as parties.
law, and where, so far as necessary, discovery may be obtained as well as in equity. Rev.Stat., § 724; United States v. Bitter Root Co., 200 U. S. 451. A complainant who can obtain all the relief to which he is entitled in a single suit cannot invoke the interference of a court of equity on the ground that defendant may be saved a multiplicity of suits against it by others situated similarly to himself.
This case comes here on writ of certiorari, which brings up the record from the Circuit Court of Appeals of the Second Circuit, reversing the decree of the Circuit Court for the Southern District of New York, which sustained the petitioner's demurrer to the plaintiff's bill and dismissed the same. The opinion of the circuit court is reported in 142 F. 835, and that of the circuit court of appeals, 151 F. 1.
The complainant is a citizen of the State of Maryland and brings this suit in behalf of himself, as well as all the policyholders and annuitants of the company defendant who may choose to come in and join therein; the defendant is a citizen of the State of New York and an inhabitant of the southern district thereof.
"to receive a semiannual dividend on the stock so held by them, not to exceed three and one-half percent of the same, such dividends to be paid at the times and in the manner designated by said directors of the company. The earnings and receipts of said company, over and above the dividends, losses, and expenses, shall be accumulated."
The officers were to strike a balance every five years from December 31, 1859, which was to exhibit its assets and liabilities and also the net surplus, after deducting a sufficient amount to cover all outstanding risks and other obligations. Each policyholder was to be credited with an equitable share of the surplus, which was to be applied to the purchase of an additional amount of insurance for each policyholder, or, if any policyholder should so direct, such equitable share of the surplus should be applied in his case to the purchase of an annuity.
of the person holding the absolute legal title to this policy, substitute a cash payment, to be fixed by said society, in lieu of the said increase to the amount insured, and such payment may be made by reduction of subsequent premiums, if said policyholder shall so elect."
The complainant elected to receive his share of the surplus, as ascertained from time to time, in the reduction of the premium, and the company was notified of that election, and ratified and accepted the same; and, since the date of the issuing of the policy, the complainant has regularly paid the premiums thereon as they severally accrued, after deducting the sums which at each period, the officers of the defendant stated to be the entire amount applicable in reduction of the premiums as complainant's equitable share in the surplus. Although the complainant has been entitled to have his full share of the lawfully ascertained and true surplus profits of the defendant applied in reduction of his premium, yet the amounts allowed by the officers of the defendant in reduction of his premium have not been the real amounts of complainant's equitable share in the true surplus, but, by means of the abuse of discretion, wrongs, and the inequitable and fraudulent conduct of the defendant, its officers and agents, the company, its officers and stockholders, have wrongfully retained, and, to the extent of a large sum, fraudulently wasted and misappropriated to themselves, a large portion of complainant's share in said surplus; that he has accepted such reductions of premium as have been from time to time assigned to him solely because of his belief that the officers of the defendant were acting in a just and lawful manner, and in reliance upon the representations of the officers of the defendant thereto, stating that he was receiving his lawful share of the true surplus, which representations were untrue and fraudulent, and without knowledge by complainant that they were untrue, or of the facts thereafter stated in the bill.
defendant during the preceding year, which surplus has been reported annually for many years to the insurance department of the State of New York as the fund which belonged to the policyholders exclusively, and one in which the stockholders were without any interest whatever, while, on the other hand, the defendant now claims that such surplus belongs to its stockholders.
The defendant, through its officers, has been crediting and paying to its policyholders, from time to time, only a portion of the surplus admitted to exist by the defendant, and to the whole amount of which complainant and the other policyholders are entitled in equitable proportion, and the officers, contrary to the rights of the policyholders, and in fraud of their rights, have not credited the policyholders with their equitable share of the surplus, although such surplus has been duly ascertained from their books, nor have they paid policyholders whose policies matured from time to time their just and equitable share of such surplus to which they were entitled, and the stockholders now claim and threaten to appropriate all the surplus as a dividend, or earning, upon the shares of stock of the company, in direct disregard of the representations made by the defendant to the superintendent of insurance of the state and in disregard of the rights of the policyholders.
that in fact they have distributed to themselves improper and extravagant salaries, commissions, and expenses from the fund or surplus which belonged to the policyholders. Great waste and extravagance are alleged to have been committed by the defendant through its officers in many ways. The officers of defendant have failed to properly invest and reinvest the funds of the company, but have willfully and negligently misappropriated and fraudulently mismanaged them.
The defendant is still in the control of the stockholders, whose representatives have been guilty of misappropriation, and its business is at a standstill. The interests of the policyholders are to place the assets in the hands of a receiver, in order to wind up the affairs of the defendant, which is the only way to safeguard the policyholders' interests. An action at law is inadequate to afford proper relief, and there would result, if such actions were necessary, a multiplicity of suits.
connection with the funds of the defendant, except to transfer the same to a receiver, and that a receiver be appointed to take possession of all the funds held by the defendant, of every character and description, and administer and distribute the same as he may be directed by the court.
The defendant demurred to this bill (1) for want of equity; (2) complainant has an adequate remedy at law; (3) complainant, under the laws of New York, had not legal capacity to sue; (4) complainant had no interest in the subject matter of the bill. Other grounds were stated not specially material now to notice.
ruinous to the interests of hundreds of thousands of people, and really beneficial to none. The enormous and very likely necessary expenses connected with a receivership, its certain failure to give full satisfaction to all, and the very great delays that would accompany the granting of the relief asked are strong reasons against granting it in the case of a defendant which is paying all its obligations as they are presented. In addition to all these objections, it has happened that, since 1905, a new board of directors has been chosen, new officers placed in command, and probably an entirely new policy adopted and followed, although these last-mentioned facts have happened since the filing of the bill in 1905, nevertheless it is not improper to refer to them, as they only constitute a history of the defendant since that time. They are found in public documents in New York, filed and existing of record in its insurance department, and they are the sworn returns of the officers of the defendant, made since the change in 1906. They may be referred to not to contradict the averments of the bill, but to show the officers now in control of the management of the defendant, its present condition, and the fact that it is now in full operation and in the daily discharge of all its obligations as they are presented. The right to an accounting in equity and the winding up of the defendant under these circumstances would have to be most clearly made out before such relief would be granted. A court of equity is bound to consider these facts before it would grant relief of the nature demanded. Such a court takes all the facts into consideration, and the relative advantages and disadvantages of granting a relief which lies largely, in cases of this nature, in the discretion of the court, even if it be assumed that jurisdiction to grant the relief existed at all.
and a still further appeal is pending in the New York Court of Appeals. We do not regard the matter as material, as it only refers to the claims of the stockholders to own the entire surplus in the defendant, and to the alleged attitude of the defendant as to these matters, in not denying their claims. This gives no ground for equitable interference at the suit of a policyholder against the defendant of the nature herein demanded.
As the questions in this case arise upon the defendant's demurrer to the bill of the complainant, it is necessary to direct attention to the effect of a demurrer as an admission. We are not called upon to cite authorities for the statement that a demurrer only admits facts well pleaded in the pleading demurred to. It does not admit the pleader's conclusions of law, nor does it admit the correctness of any opinion set forth in the bill; as, for instance, in regard to the probable effect in the future of the continued control of the defendant by the interests existing therein up to 1906. Hence, any construction placed by complainant upon the charter of the defendant and the insurance policy issued by the defendant to the complainant is not admitted, nor is the allegation of the ownership of the surplus by the policyholders, as alleged by the complainant, nor any opinion which is expressed in the bill as to the ability of the defendant to continue business; nor is any other opinion as to future happenings admitted by the demurrer.
and had its general home office and its legal residence and domicil in that state. The insurance policy owned by complainant appears on its face to have been executed in New York, and there is no averment to the contrary. The decisions of the highest court of New York are therefore binding upon this Court as to the meaning and effect of the charter of the defendant, and as it is a New York company, and the contract is a New York contract, executed and to be carried out therein, its meaning and construction, as held by the highest court of the state, will be of most persuasive influence, even if not of binding force, in the absence of any federal question arising in the case. There is no such question here. Stone v. Wisconsin, 94 U. S. 181, 94 U. S. 183; National Park Bank v. Remsen, 158 U. S. 337-342; Sioux City &c. Co. v. Trust Co., 173 U. S. 99. This principle has been so frequently decided that further reference to adjudged cases need not be made.
The suit is brought by complainant for himself, as well as all other policyholders and annuitants of the defendant who may choose to come in and join in the suit, and the company is the sole defendant. No officer of the company or stockholder therein, or any alleged debtor to the company, is made a party, and consequently any averment of the continuance in power of the same persons in the board of directors or otherwise is immaterial as a reason for the bringing of the action by the complainant in his own behalf, etc., to recover debts due the defendant, which the defendant will not itself sue for. This is not an action of that nature, and there are not present the necessary parties to maintain it if it were. The purpose of the averment is probably to sustain the application for a receiver, made necessary, as alleged, by the wrongdoing of some of the former officers of the defendant. That, however, gives no jurisdiction for an accounting in equity as between a simple debtor and creditor, and in the absence of any trust relation between them. A mere creditor, as such, has no right to that remedy.
of the moneys of the defendant before they ever reached the surplus fund, and before any distribution of it was made. In other words, they aver facts of mismanagement of the funds and wrongdoing by others, upon which a cause of action might arise against the officers and stockholders, or other persons guilty of such acts of wrongdoing and waste, in favor of the company itself. They lay no foundation for the jurisdiction of a court of equity in such a case unless it appears that the relation between the policyholder and the defendant is that the latter is the trustee of the former by reason of the trust relation between them resulting from the insurance policy. The complainant's contention, as above stated, that there is such a trust in the fund mentioned has never been regarded as the law in the State of New York (Cohen v. New York Life Insurance Company, 50 N.Y. 610; People v. Security Life &c. Co., 78 N.Y. 114; Bewley v. Equitable Life &c., 61 How.Pr. 344; Uhlman v. New York Life Ins. Co., 109 N.Y. 421; and, to the same effect, Greeff v. Equitable Life Assurance Society, 160 N.Y. 19), nor anywhere else so far as any case has been cited on the subject.
"that it cannot be said that the defendant is, in any sense, a trustee of any particular fund for the plaintiff, or that it acts as to him and in relation to any such fund in a fiduciary capacity. It has been held that the holder of a policy of insurance, even in a mutual company was in no sense a partner of the corporation which issued the policy, and that the relation between the policyholder and the company was one of contract, measured by the terms of the policy."
complainant. Indeed, the policyholder in the Uhlman case occupied a much stronger position for making the claim than does this complainant, who is the holder of an ordinary life policy, with rights to participate in the distribution of the surplus according to methods, etc., adopted by the defendant, as already mentioned. The claim was, however, denied by the state court, following the decisions of the New York courts for many years. To hold that a trust is proved in this case by virtue of the charter and policy of insurance is to hold contrary to the decisions of the highest court of the State of New York for a long number of years past, without a single decision the other way in all that time.
having in view the present and future contingencies of the business, and the court remarked that "there was no evidence or allegation that the plaintiff had been inequitably treated by the defendant as between himself and the other policyholders." The frauds and mismanagement mentioned did not, in themselves, give a policyholder any greater right to a distribution than is mentioned in the contract, and the right depended upon the judgment and discretion of the company as to time and amount.
such allegations, and if true, the court could declare the proper principles upon which the apportionment was to be made, so as to become an equitable apportionment. The Greeff case simply adopted that statement in the course of the opinion, which is chiefly devoted to the discussion of other matters.
There is nothing in either case to show that any other wrongdoing or fraud was in contemplation of the court than that above mentioned, viz., that the proposed or actual distribution of the money as between the policyholders themselves was not equitable, or was based on erroneous principles.
Wrongdoing, waste, misapplication of funds, and actions of that character, affecting the amount of the fund before distribution, were not held to furnish a ground of equitable jurisdiction for an accounting, and it was not held that even frauds in the distribution itself as between policyholders, or the adoption of wrong principles for such distribution, would be ground of jurisdiction in equity. That question was not before the court, and was not decided. It was simply stated that it would afford ground of action, not necessarily ground for equitable jurisdiction. However, this is no such case as the language used shows was contemplated in the observations of the court in the Uhlman case.
So far as the averments in the bill go as to the purchase of the majority of the stock of the defendant by Mr. Ryan and the execution by him of a deed of trust, we think those averments have no tendency to prove the existence of facts material to the cause of action attempted to be set forth in the bill.
way of salaries and fees, and also for sums of money lost consequent upon the fraud and waste of the directors or officers of the defendant, all of which are too large for the defendant to pay when demanded, is not admitted by the demurrer, and is not accurate as a conclusion of law. Whether such liability could be legally maintained or whether the defendant would be unable to pay the amount claimed from it when it was properly proved, and judgment duly recovered against it in an action for that purpose, is a mixture of a legal conclusion with a matter of opinion as to the future ability of the defendant to pay such liabilities. And the idea that the defendant itself is liable to policyholders for the frauds or wrongdoing set out in the bill and committed by its officers or members of its board of directors against the defendant, and in their personal interests, we regard as without foundation. Such a kind of future possible insolvency furnishes not the slightest ground for present legal action adverse to the defendant. Very likely the defendant could itself maintain an action against those who have been guilty of fraudulent conduct towards it, resulting in financial loss to it, and, of course, those who are alleged to be guilty would have to be made parties. No case is therefore made for an accounting or for a receiver, based upon these allegations of the bill. Certainly the court could not give any judgment that the policyholders are the owners of the so-called surplus. It may be that they are. The bill itself avers that the stockholders contend they are the owners of the surplus, or at least, of some considerable part of it, and certainly no decree could be made on the subject of such ownership and against the claims of the stockholders, without their presence as parties.
where, so far as necessary, discovery may be obtained as well as in equity. Rev.Stat. § 724; United States v. Bitter Root Co., 200 U. S. 451, and cases cited.

References: § 724
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 § 724
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