Clark v. Mutual Reserve Fund Life Ass'n

14 App. D.C. 154, 1899 U.S. App. LEXIS 3552

• Court: Court of Appeals for the D.C. Circuit
• Decided: February 7, 1899
• Docket: No. 830
• Status: Published

Opinion

Mr. Chief Justice Alvey

delivered the opinion of the Court:

As we have seen, it is alleged in the bill that the defendant is a New York corporation, incorporated under the laws of that State, and that it is a mutual life insurance corporation, doing business on the co-operative or assessment plan, and that its home or principal office is in the city of New York; though it has an agent duly appointed in this District, and a place of business therein. But though a foreign corporation, and a mutual insurance company, and therefore necessarily dependent to a large extent upon its charter or articles of association, and by-laws made in pursuance thereof, for the definition of its powers, and the rights and duties of its members, neither the charter or articles of association nor the by-laws are exhibited with the .bill; and the court, therefore, is left without knowledge in regard to them. The mere allegations of the effect and operation of the charter or by-laws of the defendant are not facts that are admitted by the demurrer, but construction of law, merely. A demurrer never admits the mere averment of the pleader, or the construction of an instrument; nor does it admit as true the conclusions or inferences drawn by the pleader from facts alleged, or which should have been alleged, in the bill. As said by the Supreme Court, in the case of Dillon v. Barnard, 21 Wall. 437: “A demurrer only admits facts well pleaded; it does not admit matters of inference and argument, however clearly stated; it does not admit, for example, the accuracy of an alleged construction of an instrument, when the instrument itself is set forth in the bill, or a copy is annexed, against a construction required by its terms; nor the correcta ess. of the ascription of a purpose to the parties when not justified by the language used.' The several averments of the plaintiff in the bill as to his understanding of his rights, and of the liabilities and duties of others under the contract, can, therefore, exert no influence upon the mind of the court in the disposition of the demurrer.” See, also, case of Swan v. Mutual Reserve Fund Life Assn., 155 N. Y. 9.

It is alleged in the bill that the contract of insurance between the plaintiff and the defendant association is made up of the application for insurance, the certificate issued to the plaintiff upon such application, the printed rules and regulations contained therein, together with the representations by the defendant, in the circulars and otherwise as set forth in the bill. This allegation as to what constitutes the contract, is simply the statement of a conclusion of law, and is of no force or effect upon the demurrer, especially as the by-laws, rules and regulations, and the circulars referred to are not set out as part of the bill.

The contract of insurance here involved is of a mutual character, as its title imports, and the plaintiff became a member of the association by obtaining the certificate of membership, and as such member we may suppose that he was entitled to certain rights in the administration of the affairs of the corporation. To determine what those rights were or are, the constitution or articles of association and the by-laws should have been exhibited as part of the bill, for they are required to be consulted and construed in determining the nature of the contract, and the rights and duties of the parties thereto. And though such constitution and by-laws may not be referred to in the certificate of membership, yet they are binding upon the members of the association, and constitute a part of the contract of membership.

By becoming a member of a mutual association, such as the defendant in this case, one is conclusively presumed to know its constitution and by-laws, and if he fails to acquaint himself with them, he can not escape their force and operation by setting up his want of actual knowledge of them, nor by showing that they were not referred to in the certificate held by him. This principle is established by many well considered cases, a few of which it will be sufficient to refer to in this connection. Hass v. Mutual Reserve Assn., 118 Cal. 69; Barbot v. Mut. R. Fund Life Assn., 28 S. E. Rep. (Ga.), 498; Supreme Commandery v. Ainsworth, 71 Ala. 436, 443; Suttz v. Mut. Reserve Fund Life Assn., 145 N. Y. 563, 568.

The rights and liabilities of parties in a mutual co-operative insurance company are essentially different from the rights and liabilities, in a stock insurance company. This difference is remarked upon by Mr. May in his work on Insurance, Sec. 146. He says: “Mutual insurance, it is truly observed, is.essentially different from stock insurance; and much of the litigation that has grown out of this species of insurance has been owing to inattention to this difference. Its original design was to provide cheap insurance by means of local associations, the members of which should insure each other. Such associations are in their nature adapted only to local business. They need many by-laws and conditions that are not required in stock companies ; and it is necessary and equitable that each person who gets himself insured in them should become subject to the same obligations towards, his associates that he requires from them towards himself. If the officers have discretionary power as to the terms of the contract, or even as to its form, it is obvious that different parties may become members upon different terms and conditions, and thus the principle of mutuality will be completely abrogated.” And so again, in section 548, the author says: “The principle which lies at the foundation of mutual insurance, and gives it its name, is mutuality; in other words, the intervention of each person insured in the management of the affairs of the company and the participation of each member in the profits and losses of the business, in proportion to his interest. Each person insured becomes a member of the body corporate, clothed with the rights and subject to the liabilities of a stockholder. He is at once insurer and insured.”

And in Niblack on Beneficial Societies, at section 136, the same principle is stated, with the authorities for its support. The author says: “An ordinary life insurance policy contains the whole contract of insurance; but the certificate of membership in a mutual benefit society is only a part of the written evidence of the contract. . . . The charter, constitution, and by-laws of such societies are made to contain the whole plan of insurance, designating who shall be the beneficiaries of its members, fixing the amount of the benefit fund, and setting forth the terms of the entire contract.» In such cases membership in the society carries with it a specific amount of insurance.”

With these well settled principles in view, it would clearly not be safe or proper to proceed upon the assumption that j the certificate of membership exhibited with the bill contains! the entire and exclusive evidence of the contract, in the’ absence of the constitution or articles of association and the by-laws of the corporation. The certificate of membership having been issued and accepted subject to the provisions' and conditions of those articles and by-laws of the association, the certificate must be construed in reference and in subordination to such articles and by-laws; and it may be that some of the articles or by-laws may have a very material bearing in the construction of the certificate,. and hence they should have been made a part of the case as stated by the bill.

But apart from this defect in the bill, in considering the case on demurrer, there is a broader and more insuperable objection to the bill than that just referred to, and that is the want of power and jurisdiction in the court to extend its remedial processes to restrain and control the internal affairs and administration of corporate duties and functions of the defendant, a foreign corporation. It was upon this ground that the court below acted in sustaining the demurrer and dismissing the bill.

The principal ground of complaint appears to be the alleged or supposed illegal enhancement of the rate of assessments levied and collected, and attempted to be collected, of the plaintiff, over and above the rate specified in the table of rates endorsed on the certificate of membership. This increased rate of assessment would appear to be the result of a change of policy on the part of the defendant association, founded upon a supposition that it was inequitable and unjust that the assessment should be based upon the age of the member at the time he obtained his certificate of membership, and that the just and more equitable rule would be to make the assessments with reference to the age of the member at the time the call is made. This may, and certainly would appear to work great hardship upon the older class of members. But the question is, has a court of equity in this District the power or jurisdiction to correct the wrong) if it be one? If this were an action to recover money due .on the policy, or an action by the defendant association to recover of the plaintiff money due for assessments, or any money obligation of one party to the other, then, in all such cases, and others that might be suggested, instituted in the courts of this District, the jurisdiction of a court of equity here might be invoked to prevent injustice and wrong. In all such cases, the party aggrieved has a right to sue and obtain effective remedy against foreign insurance companies, having an agency here and doing business in this District. This is provided for by the act of Congress of 1887, Ch. 46, Sec. 4 (25 Stat. 369). That act provides for the due ap-' pointment of an agent in this District, as a condition upon which a foreign insurance company is allowed to do business here, — the agent being made competent to receive service of process in suits against the company appointing him. But that act, manifestly, does not contemplate or apply to a case such as the present. It does not contemplate suits here against foreign insurance companies, the object and effect of which would be to restrain their home administration, and to ransack and overhaul their internal affairs, in order to determine whether their proceeding has been in all respects legal and in accordance with the law of their creation, and of their by-laws, as they may affect their individual members. It is clear, the Act of 1887 does not attempt to make foreign insurance companies doing business here under this statute,' corporations of this District. For, as said by the Supreme Court in the case of Penn. Co. v. St. Louis, etc., RR. Co., 118 U. S. 290, 296: “To make such a company a corporation of another State, the language used must imply, creation or adoption in such form as to confer the power usually exercised over corporations by the State, or by the legislature, and such allegiance as a State corporation owes to its creator. The mere grant of privileges or powers to it as an existing corporation, without more, does not do this, and does not make it a citizen of the State conferring such powers.” The Act of 1887 contains no language that could imply creation or adoption of these foreign insurance corporations, but only the grant of privileges or powers to existing corporations of other jurisdictions, upon complying with certain conditions. The class of laws granting such privileges and powers, say the Supreme Court, in the case just referred to, “are common in authorizing insurance companies, banking companies, and others to do business in other States than those which have chartered them.” Such' acts do not extend the jurisdiction of the courts of one Stated and authorize them to reach over their territorial limits into the jurisdiction of another State, and to bring into review and revision the corporate acts and internal affairs of the local corporations of the latter State. Such a power, if at“!-.t tempted to be, exercised, would be futile and ridiculous.» Indeed, neither the legislatures of the States, nor the Congress of the United States, could confer such power.

In this case, it is proper to observe the prayer of the bill. The prayer is, that'an injunction may issue to restrain the defendant and its agents from collecting any sum upon call No. 97, dated April 1st, 1898, and upon all subsequent calls in excess of the rate in force at the date of the certificate of membership issued to the plaintiff, and from in any manner declaring lapsed and void the policy or certificate held by the plaintiff, and commanding the defendant to retain the plaintiff as a member and policyholder in good standing during the pendency of this suit, with the same force and effect as if he had paid all said calls or assessments.

Now, in the first place, all assessments and dues, required 'to be paid by the certificate holder, as also the amount of the policy itself by the defendant, are payable and are required to be paid, at the home office of the defendant, in the city of New York. And this being so, it is a little difficult to imagine how a court in this District could restrain and direct the action of the corporation at its home office in the city of New York. Suppose the injunction tó be issued as prayed, and to be served upon an agent in this District, and the board of directors of the corporation were to refuse to ■ recognize it, and proceed to forfeit and declare null and void the certificate or policy of the plaintiff, for default of payment of assessments, as according to the terms of the certificate they are authorized to do. How would or could the court in this District deal with such conduct? For the disregard or violation of an injunction the ordinary remedy is a proceeding and punishment for contempt.- But how could that be made effectual as against parties beyond the jurisdiction of the court, and who claim to be proceeding in accordance with what may be legal authority derived from their own State? It is very clear, therefore, that this prayer for an injunction could not be granted.

Tbe next prayer is, that the defendant be required to discover to the plaintiff its books and accounts, showing losses, mortality, expenses, and particularly the salaries of each individual officer of the association, assessments and matters and things incident thereto, since the plaintiff became a member of the association, etc., whereby correct and true assessments and amounts which should have been at all times levied upon the plaintiff and the other members of the association may be ascertained, and that an accounting be had between the plaintiff and defendant.

It is hardly necessary to say that a court of equity in this District has no such power or jurisdiction over the affairs ! of a foreign corporation as to require such discovery and accounting as prayed for by this bill. Upon such a theory as is here propounded, no corporation could ever venture to conduct business beyond the limits of the State of its creation. According to the principle of this prayer, any business transaction of an insurance company which might take place in a State other than that of the company’s creation, and which could be alleged to affect the assets of the company and the interest of its members, would furnish the ground for calling for discovery, the production of books, and for a general accounting. Upon any such principle, it would be very perilous for any insurance company to attempt to do business beyond the limits of the State of its creation. It might have a half dozen courts, in as many different States, requiring discovery, and demanding the production of books, and directing the statement of accounts, all at the same time. There is no principle that would justify such proceeding,

Then, again, it is prayed that the true and proper amount of assessments to be made be determined, and that it also be determined what amount the plaintiff has already paid in 'excess of the rate of assessment that should have been levied upon him, and that the defendant be compelled to refund the same, and that there be directed and required to be made a proper application of the reserve fund in accordance with the requirements of the certificate of membership.

This prayer, like the preceding, requires a complete overhauling and scrutiny of the entire administration of the internal affairs of the corporation, from the time that the plaintiff became a member down to the present time; and nothing short of a full and complete account would enable the court to decree in accordance with the prayer.

It is thus apparent, from the statement of the facts alleged in the bill, and from the several prayers based thereon, that the relief sought, if it could be granted, would require the control, direction and revision of the internal affairs of the corporation, by a court of equity of this District. This we think, upon the clearest authority, can not be done. The,, law would seem to be too well settled to admit of a question, that where the acts complained affect the plaintiff in his ■ rights of corporator, or stockholder, or as a member of a j mutual benefit or insurance company or other corporation, 1 and the acts are those of the corporation, done and performed ■ in the course of the administration of the corporate affairs, and espécially when claimed to have been done and performed, or authorized to be done, by virtue of authority derived from its charter or by-laws, the courts of another State or jurisdiction will not interfere or attempt to exercise jurisdiction to direct, control, or revise corporate action. T©^ assume jurisdiction over the affairs of a foreign corporation, j would inevitably lead to conflicting decisions, resulting in confusion and needless litigation, and the making of orders and decrees simply to be contemned, because not capable of being enforced. The court, if it were to undertake to act in such cases, has no power, and- therefore can not bring the officers, or the corporate books, or the assets of the corporation within its jurisdiction, to be subject to its process. Its decrees could only be enforced by proceedings for contempt, and yet there would be no person here, subject to that process, to be coerced to act for the corporation. The mere local agent, clearly, would not be such person. It may well be said, therefore, as was said by the court in the case of Leary v. Columbia River, etc., Co., 82 Fed. Rep. 775, on, an application very analogous to the present, that “the authorities cited by counsel for the defendant corporation clearly and strongly show that courts having jurisdiction to enforce their decrees in the State where the corporation has its home office should be resorted to in all cases where it is necessary to inquire into and regulate the internal affairs of the corporation,” and not to courts' of a different State or jurisdiction. And without stating the facts of each particular case, we deem it sufficient to refer generally to some few of the leading and more important cases upon this subject, in support. of the conclusion that we have stated. And for this purpose wre refer to Fisher v. Charter Oak Life Ins. Co., 20 J. & S. 179; Howell v. Chicago & Northwestern RR. Co., 51 Barb. 378; North State Copper Co. v. Field, 64 Md. 151; Wilkins v. Thorne, 60 Md. 253; Smith v. Mutual Life Ins. Co., of New York, 14 Allen, 336; Kansas & E. R. Const. Co. v. Topeka S. W. RR. Co., 135 Mass. 34; Pierce v. Assurance Soc., 145 Mass. 56; Kimball v. St. Louis, etc., RR. Co., 31 N. E. Rep. (Mass.), 697; Stafford v. Am. Mills Co., 13 R. I. 310; Madden v. Electric Light Co., 181 Pa. St. 617.

For the reasons we have stated, we shall affirm the decree of the court below, but without prejudice to the right of the appellant to sue and maintain his action in any proper court having jurisdiction of the subject matter; and it is so ordered

Decree affirmed.