Appeal from Special Term, New York County.
Action by William Hepburn Russell against the Pittsburgh Life & Trust Company and another. From an order granting an injunction and giving leave to apply for an amendment providing for the appointment of a receiver or receivers, both parties appeal. Reversed on defendants' appeal, and plaintiff's appeal dismissed.
See 115 N.Y.Supp. 950.
A policy holder of a domestic stock life insurance corporation, conducted on the mutual plan above a limited dividend to the stockholders, cannot sue to restrain a transfer of the assets of the corporation to a foreign stock insurance corporation pursuant to a contract for the merging of the two corporations; but the remedy for the wrongs complained of must be sought by the officers having supervision of the corporation and its acts under the laws regulating the business of insurance.
[116 N.Y.S. 842] Frank
E. Carstarphen (William Hepburn Russell, of counsel, and Alva Collins, on the
brief), for plaintiff.
Parker, Hatch & Sheehan (Edward W. Hatch, of counsel), for Washington Life Ins. Co.
Henry A. Rubino (Frederick M. Czaki, Miles M. Dawson, and Frank Ewing, on the brief), for Pittsburgh Life & Trust Co.
[116 N.Y.S. 843]
Argued before INGRAHAM, McLAUGHLIN, LAUGHLIN; CLARKE, and SCOTT, JJ.
[116 N.Y.S. 844]
The complaint alleges: That the plaintiff is, and since December 15, 1890, has been, a policy holder of the Washington Life Insurance Company. The policy insures the life of plaintiff in the sum of $5,000, for the sole use of his wife and children, for the term of his natural life, with participation in profits as provided. That the Washington Life Insurance Company is a New York corporation, having a capital stock of $500,000, incorporated in 1860. That on December 31, 1908, said defendant had in number about 28,000 policy holders. That plaintiff brings this action in his own behalf and also in a representative capacity for and in behalf of all other policy holders having like rights and interests. That the Pittsburgh Life & Trust Company is a Pennsylvania corporation, having a capital stock of $659,000, authorized to conduct a general life insurance business. That said company is not now, and never has been, authorized to carry on its business in the state of New York.
On information and belief: That in August or September, 1908, William C. Baldwin, then and now president of said Pittsburgh Company, acting for himself and others then associated with him in the directory of said Pittsburgh Company, and for said company, purchased from the then holders thereof, 1,948 shares of the stock of said Washington Company, paying therefor about $87.50 per share, an aggregate amount of $800,450; the shares being of the par value of $50 each. That on or about September 24, 1908, all of the directors and most of the officers of said Washington Company resigned. that immediately upon said resignation the said Baldwin and a number of his associates in the management and directory of said Pittsburgh Company were elected directors of the Washington Company. That, of said persons then so elected, the majority were then and ever since have been officers and directors and the controlling spirits of said Pittsburgh Company. That immediately thereafter the said newly elected officers and directors of the Washington Company entered upon the discharge of their duties as such, and took absolute control of the business, property, and effects of said company; they and their associates then and now holding and controlling at least 1,948 shares of the 10,000 shares of stock of said company. That the said Baldwin and his associates, the defendant Washington Company and the defendant Pittsburgh Company, each of the companies acting through their said officers and directors, in pursuance of a fraudulent conspiracy, on or about December 30, 1908, removed from the state of New York to the state of Pennsylvania all of the books, records, papers, money, choses in action, mortgages, and movable property of any substantial value belonging to the Washington Company and delivered the same to said Pittsburgh Company, and thereupon said Washington Company discontinued and ceased to do business as a life insurance corporation in the state of New York, and at or about the same date, by a contract, or a pretended contract, with the said Pittsburgh Company made by the same officers and directors, controlling both the said companies, transferred or pretended to transfer all of its insurance in force, including its obligations and rights under its contract of insurance with the plaintiff, and other policy holders to said Pittsburgh Company, and contracted, or pretended to contract, to reinsure plaintiff and all other policy holders in the Pittsburgh Company, all without notice and in violation of the vested contract rights and interests of the plaintiff as against said Washington Company, and in its legal reserve and its properties, and also conveyed, or pretended to convey, by deeds of conveyance all of its real property and buildings in the city of New York and elsewhere to said Pittsburgh Company. That all of these acts are in violation of the laws of the state of New York and of the charter of the Washington Company, its contract obligations to plaintiff and all of the policy holders, and especially in violation of the rights of plaintiff and other policy holders to have an apportionment made of their shares of the profits or surplus of said Washington Company, which distribution some of said policy holders are entitled to from year to year and others at the end of a definite period; the plaintiff being entitled to such apportionment and distribution in the year 1910 of all right to which he will necessarily be deprived if such cessation of business and transfer of assets and contract of reinsurance is not rescinded. That all of said acts and proceedings are in violation and fraud of all the rights of all of the policy holders of said company, and all of said contracts, transfers, and deeds of conveyance of property were and are in excess of the legal rights of said Washington Company and therefore ultra vires and void. That said Washington Company, up to and on December 31, 1908, was in a solvent, safe, and prosperous condition affording ample safety and security to this plaintiff and all other policy holders therein, by reason of its surplus, its legal reserve, and its capital stock, of all of which it and its policy holders have now been deprived by said Pittsburgh Company through the acts and transactions here set out.
Wherefore plaintiff demanded judgment: (1) That the Pittsburgh Company be enjoined and restrained from paying out, selling, or in any way disposing of any of the money, choses in action, stocks, bonds, and properties, real and personal, paid over, assigned, transferred, and conveyed to it by the Washington Life, except as this court may hereafter order and direct. (2) That the Pittsburgh Company be restrained from collecting any rents, profits, interest, income, or earnings arising from or out of any of said properties. (3) That temporary receivers be appointed to take possession of the St. James building in the city of New York belonging to said Pittsburgh Company. (4) That temporary receivers be appointed for the Washington Company and all of its properties and assets, with full power and authority to take possession of all properties heretofore belonging to it and by it assigned, transferred, conveyed, or delivered to the Pittsburgh Company, and that full power and authority be conferred upon such receivers to bring and maintain actions at law or suits in equity in this or any other state or country, to recover the properties mentioned from the Pittsburgh Company. (5) That said temporary receivers be instructed and empowered to take possession of the home office building of the Washington Life Insurance Company at 141 Broadway, New York City, and to there re-establish the office of said company, and until the further orders of the court to collect and receive the rents and profits of said building and to resume and carry on the business of the Washington Company and protect and conserve the interest of its policy holders, creditors, and stockholders by the continuance of its business in as nearly the usual course as is found practicable, and with this end in view to demand and take over from its officers and directors and from the Pittsburgh Company all the books, records, policy records, accounts and papers, indexes, and documents of all descriptions and to continue such transaction of the business of said company until the further orders of the court. (6) That said temporary receivers be further authorized to receive and receipt for all premiums due or payable from policy holders of the Washington Company and to deposit the same in a special fund separate and distinct from the other funds of the corporation, subject to the further orders of this court, and that the Pittsburgh Company be enjoined and restrained from claiming, collecting, or receiving any such premiums, payments, or any other money which may become due to the Washington Company from any sources whatever. (7) That the temporary receivers, upon their appointment, be authorized to receive all mail addressed to the Washington Company. (8) That an order issue to restrain the county clerk of the county of New York from recording the said deeds and assignments of mortgages made by the said Washington Company until the further order of the court. (9) That the plaintiff herein have such other, further, and general relief as the nature of the case requires and to this honorable court seems just.
What the companies conceive has been accomplished by the contract of reinsurance of December 30, 1908, referred to, is evidenced by the circular signed in the name of both companies by W. C. Baldwin, president, dated at Pittsburgh and addressed to the policy holders of both companies, wherein it was stated:
" The Washington Life Insurance Company had 28,000 policy holders. The Pittsburgh Life & Trust Company had 15,000 policy holders. Therefore the merging of the business of the two companies creates a group of 43,000 lives which will greatly benefit all the policy holders of the merged group.*** Since merging the business of the Washington Life Insurance Company and the Pittsburgh Life & Trust Company, the premium income will be more than double that of 1907, and it is reasonable to assume that the expense of the conduct of the business will be materially reduced."
It appears that, immediately after the execution of this contract, upwards of $18,000,000 of securities of the Washington Company were physically transferred from the office of the company in the city of New York to the office of the Pittsburgh Company in the city of Pittsburg, Pa. It also appears that, prior to the making of the order [116 N.Y.S. 845] at bar appealed from, the said securities had been brought back to the state of New York, and, under negotiations had between the officers of the several companies, the Attorney General of the state of New York and the superintendent of insurance, had been put into custody of the superintendent of insurance under an agreement entered into by the two companies, pending future procedure to test the validity of the contract of reinsurance, or the determination of an ...