Court Opinion

ID: 3503043
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:09:51.20169+00
Date Added: 2024-06-11T14:16:09.526229
License: Public Domain

I am not in accord with the foregoing opinions. In addition to the facts therein set forth, it should be stated that with the appointment of the Michigan receiver for Lloyds, August 16, 1933, "to assist" the New York liquidator "in the liquidation of defendant company," an injunction was issued "restraining any and all persons from bringing or further prosecuting any action at law or suit in equity" against the company.
On June 5, 1934, the bank secured an order modifying this injunction to enable it to prosecute to judgment its original action on the fidelity bonds. Such suit was then pending in the Federal court for the Eastern District of Michigan. August 20, 1934, the Michigan receiver petitioned the Ingham circuit court for authority to execute an agreement with the receiver of the First National Bank of Detroit to compromise and settle the judgment against the Detroit Fidelity  Surety Company. The petition bore the approval of the commissioner of insurance of the State of Michigan. An order was entered authorizing the Michigan receiver to execute the agreement and the agreement was signed by him and the bank receiver, and provided in part that if a judgment of $250,000 or more is rendered against the Detroit Fidelity  Surety Company in the suit in the Federal court, then said judgment up to $250,000 *Page 614 
shall be allowed as a general claim against the Lloyds Company in the Michigan receivership proceedings. The judgment was rendered on December 14, 1934. The receiver of the First National Bank of Detroit thereafter filed proof of claim in the sum of $250,000 in the Ingham circuit court. The claim has been allowed in full.
The record contains no statement of the assets that passed to the New York liquidator, appointed under the New York statute, nor of the amount of the claims that have been filed in the liquidation proceedings. The representative of the New York liquidator stated that he hoped to pay from 7 to 10 per cent. of the claims of the policyholder class, and 4 to 7 per cent. to nonpolicyholders; that claims of the policyholder class have already received a dividend of 3 per cent., and that there is sufficient cash available to pay a 3 per cent. dividend to Michigan creditors. The latter have filed claims in the Michigan proceedings aggregating upwards of $1,000,000. The record indicates that if the proceeds from the sale of the assets of the Detroit Fidelity  Surety Company were used solely to pay the former creditors of that company, the latter would receive an amount in excess of the amount that will be paid by the New York liquidator. The exact amount that will be available cannot be determined from the record.
I am mindful of the general rule that a corporation cannot avoid its liabilities by transferring all its assets to another corporation without making provision for payment of its debts.Grenell v. Detroit Gas Co., 112 Mich. 70. In the instant case, the consolidated company made express provision for the debts of the constituent companies by agreeing to pay them off as its own, and the problem is simply the *Page 615 
relative standing of the creditors. While the assets of a corporation have been likened to a trust fund for the benefit of creditors, the limitations of the analogy should not be forgotten. As is said in Fogg v. Blair, 133 U.S. 534, 541
(10 Sup. Ct. 338):
"That doctrine only means that the property must first be appropriated to the payment of the debts of the company before any portion of it can be distributed to the stockholders; it does not mean that the property is so affected by the indebtedness of the company that it cannot be sold, transferred, or mortgaged to bona fide purchasers for a valuable consideration, except subject to the liability of being appropriated to pay that indebtedness."
The doctrine does not prevent a corporation owning property from passing title to such property to a consolidated corporation. See Wabash, St. L.  P. R. Co. v. Ham,114 U.S. 587 (5 Sup. Ct. 1081); Francklyn v. Sprague, 121 U.S. 215
(7 Sup. Ct. 951); Hervey v. Railway Co., 28 Fed. 169;Thrower v. Kistler, 14 Fed. Supp. 217. Nor does it prevent treatment of all the general creditors on an equal basis. SeeState v. American, Bonding  Casualty Co., 213 Iowa, 200
(238 N.W. 726); Blake v. Domestic Manfg. Co., 64 N.J. Eq. 480
(38 A. 241). See, also, Lamkin v. Baldwin  Lamkin Manfg.Co., 72 Conn. 57, 62 (43 A. 593, 1042, 44 L.R.A. 786) where the creditors of the consolidated company were even given a preference.
There is nothing in Fisk v. State Savings Bank of Ann Arbor,225 Mich. 580, contrary to these principles. It was there held that a creditor "had a right to follow the property (real estate) to the new corporation, if it passed there, or levy on it as property of its judgment debtor inasmuch as title stood of *Page 616 
record in such debtor's name." Statements that the creditors of one company cannot be compelled without their consent to release their claims and look to another company to pay the former's debts must be read in the light of the transactions to which they apply. Such relief has been given in transactions which are in fraud of creditors, or result in the impairment of the obligation of a contract. There is here no claim of fraud, and the wisdom of the consolidation is not before us. It is significant that the bank voiced no objection to the plan at the time.
One insurance company, however, may, in the manner provided by law, be consolidated with another company with the consent of the insurance commissioner. 3 Comp. Laws 1929, § 12310, as amended by Act No. 163, Pub. Acts 1931 (Comp. Laws Supp. 1935, § 12310, Stat. Ann. § 24.89). The nature of the insurance business is such that, to preserve the rights of policyholders and other creditors, consolidations frequently are necessary to enable a weak company to join with a strong one or several weaker companies to combine to form a stronger one. To allow a preference to general creditors of the constituent companies nullifies the whole purpose of the consolidation which the legislature has expressly sanctioned, and which, in this instance, the commissioners of insurance of three states have approved. The Detroit Fidelity  Surety Company and its policyholders were subject from the time their policies were obtained to the insurance law of this State which provided for consolidations and the means by which they could be brought about.
Prior to the consolidation, the bank's receiver had secured no lien or preference against the assets of the Detroit Fidelity  Surety Company by garnishment, attachment, or other method. In fact, it was *Page 617 
only through leave of the Michigan court, which had appointed the receiver in aid of the New York liquidation proceedings, that the bank's receiver was permitted to prosecute his claim to judgment. And after securing that judgment, it was filed as a claim against Lloyds with the court's permission. It was filed without reservation. After electing to look to the assets of the consolidated company, the receiver is clearly precluded from asserting his judgment against the assets of the Detroit Fidelity  Surety Company. See, State v. American Bonding Casualty Co., supra. The result so reached fully accords with the policy of this State in the liquidation of insurance companies operating in several States. We said in Baldwin v.Wayne Circuit Judge, 101 Mich. 119, 134:
"The receiver appointed in Indiana and the ancillary receiver appointed here not only represent the creditors of the corporation, but stand in its stead; and under the decree of the Indiana court and of the Wayne circuit court, in chancery, in this State, they are directed to gather in the assets. Unless some reason is shown why that order should not be carried out, this local branch and its officers and members cannot refuse to turn over the assets to the ancillary receiver; and, when he has possession of such assets, the court may order them transmitted to the Indiana receiver. But such order should be made only when it is made certain to the court that the members of this State will share proportionately with the other members throughout the organization. The fund is found in many different States, and comity requires that we should do all we can to insure, as far as possible, a speedy distribution of the whole property among those entitled to it. But the court below must have some discretion in making this order so that the rights of the citizens of this State may be protected." *Page 618 
In the exercise of such discretion the circuit judge ordered the Michigan assets remitted to the New York liquidator. I cannot agree that under it Michigan creditors are denied the protection they deserve. The agreement between the two receivers expressly provides that the New York liquidator "will accept the final determination and allowance which has been, or will be made, by the receiver and the Michigan court in charge of the Michigan proceeding * * * and will make dividend distribution to said claimants on the basis of the amounts allowed by the Michigan receiver and approved by the Michigan court, along with and like all other allowed claims of the same class in the New York liquidation proceedings."
The agreement is not to become effective until the supreme court of the State of New York gives its approval to its provisions. This, it would seem, is the most effective "condition" which could be imposed upon the New York liquidator and assures Michigan creditors of complete equality.
The order of the circuit court should be affirmed, but without costs, a public question being involved.
McALLISTER, J., concurred with BUTZEL, C.J. *Page 619