Financial Indemnity Co. v. Superior Court

289 P.2d 233, 45 Cal. 2d 395, 1955 Cal. LEXIS 329

• Court: California Supreme Court
• Decided: October 28, 1955
• Docket: L. A. 23641
• Status: Published

Opinions

EDMONDS, J.

— G. Kenneth Vaughn is the owner of all of the outstanding capital stock of Financial Indemnity Company, a California corporation licensed to do business as an insurer in this state. The company and Vaughn commenced an action in the superior court seeking declaratory relief and an injunction to prevent the Insurance Commissioner from taking over the assets of the corporation. As ground for justifying judicial interference with the purpose of the Insurance Commissioner, it is alleged that the condition of the company does not come within the statutory conditions allowing him to take charge of its affairs.

On the day after that action was commenced, the commissioner presented in open court an application for conservatorship pursuant to the provisions of section 1011 of the Insurance Code.¹ Vaughn and the company requested the court to issue an order to show cause and a temporary restraining order to enjoin the commissioner from filing his application. The court refused to do so, upon the ground that “it does not have any jurisdiction in such matters until the commissioner files a petition under section 1011 or summarily seizes the company under section 1013² ... If the court issued an injunction herein it would . . . [usurp] the discretion exclusively vested in the commissioner to determine and find, in the first instance, whether or not conditions justifying seizure existed.”

Vaughn and the company then filed in the District Court of Appeal the present proceeding in mandamus. That court ordered the superior court to show cause why a writ of mandate should not issue requiring the court to proceed to a hearing and determination of the action for declaratory relief and injunction. It also provided that “pending the hearing of such order to show cause, you are directed to take no action calculated to affect the pendency of said cause except to proceed with the trial thereof.”

The Insurance Commissioner, as the real party in interest, noticed a motion to vacate the order to show cause, or for modification of it, by deleting the portion which prohibited him from filing an application for conservatorship pending the hearing. He also filed a return by way of demurrer, alleging that the petition for mandamus does not state a cause of action because the court has no jurisdiction over the respondent superior court, or the subject matter of the petition. By answer, the commissioner denies specifically and generally each and every allegation except those pertaining to the corporate status of the company. Vaughn’s stock interest, the pendency of the action in the superior court and its refusal to act. in the matter As an affirmaive defense, he attacks the petition upon the same grounds presented by the demurrer. The superior court demurred to the petition upon the grounds that it does not state facts sufficient to entitle the petitioners to the remedy sought.

Vaughn and the company contend that the commissioner is attempting to apply sections 1011 and 1013 of the Insurance Code in an unconstitutional manner, in that he threatens to take over the company for reasons not specified by the statute. Such action, the argument continues, would deprive the petitioners of their property rights without due process of law. The position of the commissioner arid the respondent court is that the writ should be denied because (1) the superior court has passed on the matter and its order is appealable; (2) the pendency of an action for declaratory relief and an injunction does not enlarge the jurisdiction of the court nor bar the commissioner from acting pursuant to section 1011 of the Insurance Code; (3) when an application is filed by the commissioner pursuant to statute, it is the mandatory duty of the respondent court to issue a vesting order; and (4) the courts have no jurisdiction to enjoin state officers from the execution of constitutional statutes for the public benefit.

Section 1086 of the Code of Civil Procedure provides that the writ of mandate “must be issued in all cases where there is not a plain, speedy, and adequate remedy, in the ordinary course of law.” “An appeal is the usual course open to a litigant who believes that the trial court has committed error.” (Phelan v. Superior Court, 35 Cal.2d 363, 366 [217 P.2d 951].) However, where the court disposes of a matter before it upon the ground that it has no jurisdiction, and thereby precludes a decision on the merits, mandamus has been issued to compel the court to decide the issues upon the merits. (See Cahill v. Superior Court, 145 Cal. 42 [78 P. 467] ; Times-Mirror Co. v. Superior Court, 3 Cal.2d 309 [44 P.2d 547] ; Levy v. Superior Court, 15 Cal.2d 692 [104 P.2d 770, 129 A.L.R. 956].) A dismissal of a proceeding or a denial of relief on the sole ground of lack of jurisdiction is not a decision on the merits. (See Hogeberg v. Industrial Acc. Com., 201 Cal. 169, 182-183 [256 P. 413] ; Helvey v. Castles, 73 Cal.App.2d 667, 672 [167 P.2d 492].) And in Katenkamp v. Superior Court, 16 Cal.2d 696 at page 698 [108 P.2d 1], the court said, “If a court is mistaken in its assumption that it does not possess the requisite jurisdiction, mandamus will issue to compel it to assume jurisdiction.”

The trial court’s refusal to issue the requested order to show cause and temporary restraining order was based squarely upon the ground of lack of jurisdiction. The decisive question, therefore, in the present proceeding is whether, upon any theory reasonably to be drawn from the facts stated in the complaint of Vaughn and the company, the commissioner may be enjoined from filing an application for conservatorship.

The purpose of Vaughn and the company is to have the issue of whether grounds for conservatorship exist determined before the commissioner is allowed to take over the company. They assert that if the conditions provided by statute as grounds for taking over the business of an insurer do not exist, an order allowing the commissioner to do so would amount to an application of the provisions of the Insurance Code against them in an unconstitutional manner. This argument assumes that any error in judgment by the commissioner would be a violation of constitutional rights. But as was said in Rhode Island Ins. Co. v. Downey, 95 Cal.App.2d 220, 230-231 [212 P.2d 965], “It is not a requirement of the statute . . ., that such matters not be disputable. The Legislature undoubtedly assumed that in most cases the company involved would dispute the commissioner’s contentions, and accordingly provided, in section 1012³ for a full hearing before the trial court, at which the company could show that the conditions claimed by the commissioner did not exist. There is no implied restriction in the statute that the eommissioner act only where the existence of the dangerous condition "is beyond dispute.”

In the Rhode Island case the commissioner obtained an order appointing him conservator. The company sought a writ of mandate directing the superior court to vacate the order, contending, among other points, that the facts did not justify the commissioner's action. The court refused to issue the writ, saying, “The statute, as construed by the California courts, requires only that the commissioner file a verified application stating that he has found one. or more, of the statutory grounds to exist. ‘In making his application under section 1011 of the Insurance Code, the commissioner does not seek a judicial appointment and a judicial ruling that the company is in fact delinquent. By his application the commissioner merely represents that he has found certain conditions to exist and has made his official administrative determination to proceed as authorized by the statute. In obtaining his original ex parte order, the commissioner is not required to show to the court that the company was in fact in a hazardous condition, but only that he. as a state officer, invested by legislative authority with the power, has so “determined” and “found.” ’ (Caminetti v. Imperial Mut. L. Ins. Co., 59 Cal.App.2d 476, 487 [139 P.2d 681] . . .; emphasis added.) ” (Pp. 230, 231.)

The court not only concluded that the issues must be heard in a proceeding brought pursuant to section 1012 but also held that an order made in accordance with its provisions is not a deprivation of due process. “Although the requirements of due process often involve a prior full hearing, it has long been recognized that where public necessity requires, there can be action followed by a hearing. ...” (P. 235.) (Also see Carpenter v. Pacific Mutual Life Ins. Co., 10 Cal 2d 307, 324 [74 P.2d 761] ; State Savings etc. Bank v. Anderson, 165 Cal. 437 [132 P. 755, L.R.A. 1915E 65] ; North American Bldg. & Loan Assn. v. Richardson, 6 Cal.2d 90 [ 56 P.2d 1221].) “It must be remembered that insurance companies, like banks and building and loan companies, are charged with a public interest, and hence, the price of doing business is the fact that whenever a condition exists which the insurance commissioner feels is hazardous, he may take over the company and the question of whether he was justified in doing so is thereafter threshed out.” (P. 233.)

The Legislature has provided a procedure by which the public interest in insurance companies may be protected.

The only requirement for judicial action upon the application of the commissioner is his determination that he believes a hazardous condition exists which jeopardizes the future of the company. Upon an application stating those facts, the code provides that the court “shall” issue the order for conservatorship. The word “shall” as used in the Insurance Code, is mandatory. (§16.)

Section 3423, subdivision 4, of the Civil Code and also section 526, subdivision 4, of the Code of Civil Procedure provide that an injunction cannot be granted “to prevent the execution of a public statute, by officers of the law, for the public benefit. ’ ’ These sections do not bar judicial action where the invalidity of the statute under which he is acting is shown (Reclamation Dist. No. 1500 v. Superior Court, 171 Cal. 672 [154 P. 845]) or when the officer exceeds his powers. (Cowell v. Martin, 43 Cal. 605.) However, sections 1011 and 1013 of the Insurance Code have been upheld as valid (Rhode Island Ins. Co. v. Downey, 95 Cal. App.2d 220 [212 P.2d 965]), and if the commissioner follows the statutory procedure and certifies that certain conditions exist, his action cannot be successfully challenged on the ground of excess of authority.

In Southern Oregon Co. v. Quine, 70 Ore. 63 [139 P. 332], the court said, “We think the law is fixed, beyond cavil, that courts of equity have no power by injunction to restrain a public officer from performing an official act that he is required by valid law to perform. It is not sufficient to clothe the court with jurisdiction to say simply that, unless the court extends its restraining hand, hardships will follow, or irreparable damage will ensue, because the officer delegated to execute such law may act unwisely or injuriously to the party seeking relief. The acts must be such as are without the sanction of a sound law.” This statement has been quoted with approval by the courts of this state. (See Reclamation Dist. No. 1500 v. Superior Court, 171 Cal. 672 [154 P. 845] ; Loftis v. Superior Court, 25 Cal.App.2d 346, 353 [77 P.2d 491].)

A court is not vested with jurisdiction to issue an injunction by an allegation in the pleadings that the commissioner has abused his discretion or acted in bad faith.

The primary purpose for the drastic remedy provided by sections 1011 and 1013 of the Insurance Code is to prevent dissipation of the assets of the company after the commissioner has determined that a hazardous condition exists. To allow a court to delay conservatorship while it determines the motives of the commissioner would as effectively defeat that purpose as to postpone the conservatorship while the existence or nonexistence of the hazardous condition is judicially established. Any dictum in the Rhode Island ease to the contrary is disapproved.

In Modern Barber Colleges, Inc. v. California Emp. Stab. Com., 31 Cal.2d 720 [192 P.2d 916], this court refused to compel, by writ of mandate, the cancellation of charges made against the petitioner for amounts assertedly due under the Unemployment Insurance Act. It was held that judicial review of the collection may be had only after payment under protest. That act provides that no injunction or writ of mandate shall issue to prevent or enjoin the collection of contributions. In upholding the statute, the court said, “If proceedings which halt the collection of the tax were allowed to be brought before the payments are made, the power would be placed in the hands of employers to so delay the creation of the fund as to frustrate the purposes of the act. It has been expressly declared by this court that these purposes are of great public importance, and that procedural obstacles which would delay or prevent their fulfillment are to be avoided.” (P. 732.)

The Insurance Code clearly indicates a legislative intent to create a system to protect the public interest in insurance companies. The issuance of an injunction would defeat the purpose of such statutes. (See Moore v. Superior Court, 6 Cal.2d 421, 424 [57 P.2d 1314].) The Legislature has determined that possible irreparable injury to the company must be subordinated to the public interest. (See Rhode Island Ins. Co. v. Downey, 95 Cal.App.2d 220 [212 P.2d 965] ; North American Bldg. & Loan Assn. v. Richardson, 6 Cal.2d 90 [56 P.2d 1221] ; State Savings etc. Bank v. Anderson, 165 Cal. 437 [132 P. 755, L.R.A. 1915E 65].)

The petitioners have filed an application for leave to present additional evidence. They claim that an examination of the company’s financial condition, recently completed by the Insurance Commissioner, shows that it is solvent. They do not state the purpose for which the evidence is offered, but apparently it is in support of their position that the contemplated application by the commissioner for an order authorizing him to conduct the business as conservator is not to be made upon statutory grounds.

For the reasons which have been stated, the petition for mandate presents no tenable ground for judicial interference with the exercise of the commissioner’s official duty. Although after an order has been made upon such an application, evidence of the insurer’s solvency would be relevant in a hearing conducted pursuant to section 1012 of the Insurance Code, it has no bearing upon the issue in the present proceeding. Upon the record before him, the trial judge was correct in the conclusion that the court was without jurisdiction to enjoin the commissioner from making such application.

The application for leave to produce' additional evidence is denied. The demurrers to the petition for a writ of mandate are sustained, and the order to show cause is vacated

Gibson, C. J., Shenk, J., Traynor, J., and Spence, J„ concurred.

1 Section 101] : ‘ ‘ The superior court . . . shall, upon the filing of the commissioner of the verified application showing any of the following conditions hereinafter enumerated to exist, issue its order vesting title to all of the assets of such person, wheresoever situated, in the commissioner. . .

2 Section 1013: “Whenever it appears to the commissioner that any of the conditions set forth in section 1011 exist or that irreparable loss and injury to the property and business of a person specified in section 1010 has occurred or may occur unless the commissioner so act immediately, the commissioner, without notice and before applying to the court for any order, forthwith shall take possession of the property, business, books, records and accounts of such person, and of the offices and premises . . . and retain possession subject to the order of the court. ...”

3 Section 1012: “Said order shall continue in force and effect until, on the application of either of the commissioner or of such person, it shall, after a full hearing, appear to said court that the ground for said order directing the commissioner to take title and possession does not exist or has been removed and that said person can properly resume title and possession of its property and the conduct of its business. ’ ’