Union Indemnity Co. v. Railroad Commission

The following opinion was filed October 20, 1925: Jones, J. It is the object of this opinion to state the grounds on which the decision announced October 9, 1925, was based. At the trial in the circuit court the point was urged for the first time by the counsel for the insurance commissioner that the application should be denied for the reason, as alleged, that the proposed transaction would be a fraud upon the statutes of Wisconsin regulating the merger or consolidation of insurance corporations and was therefore illegal and void. In the brief in this court, counsel for the insurance commissioner reviews the history of the negotiations, and reliance is placed in part on a proposal made by the Louisiana Company in 1923 to the officers of the Wisconsin Company to merge the two into a single institution to be known as the Union Indemnity Company by which there would be a complete merger, putting capital and surplus of the Wisconsin Company into that of the Louisiana Company. After consideration the board of directors of the Wisconsin Company declined the proposition for the reason that they desired to handle their company independently. They indicated that if some plan could be adopted by which, without merger, the two companies could be operated under a common management and the continuance of the — 535 — Wisconsin Company as a separate corporation with a separate board of directors, it might be approved. Later negotiations continued along the lines, not of a merger but of operating the Wisconsin Company as a separate corporation under general management with the Louisiana Company, with the idea that the two companies could be operated under practically the expense of one. The testimony is undisputed that the plan first proposed was abandoned and that the application for a permit was pursuant to the later negotiations. Counsel for the insurance commissioner relies on the fact that the proposal was made, not by the stockholders of the Louisiana Company but by the company itself, and that.the offer was not to be effective unless two thirds of the stock of the Wisconsin Company should be deposited. It seems plain, however, from the testimony that it was the intention to exchange stock belonging not to the Louisiana Company but to its stockholders; that it was deemed necessary that the proposal should be made not by individual stockholders but by some responsible party, and that in making the proposal the Louisiana Company was acting in their behalf. Moreover, it was stated in the plan accompanying the proposal that the continued operation of the Wisconsin Company as a separate institution was contemplated. It is important that 'in' the application for the permit, which is the basis of the entire proceedings, permission was asked to exchange shares of the stock of the Louisiana Company by the owners thereof for shares in the other company. Much of the argument of counsel for the insurance commissioner is based on the assumption that the stock of the Wisconsin. Company was to be acquired and owned by the Louisiana Company as a corporation, and it is argued that this would amount to a merger or a consolidation. We think the testimony established beyond reasonable doubt that the proposed transaction amounted to an exchange of stock between stockholders in the two companies. The terms — 536 — “consolidation” and “merger” are often used somewhat loosely and sometimes as meaning the same thing. But it seems to be well settled that a merger does not mean the same thing as a consolidation, but exists- where one corporation remains in being and merges in itself one or more other corporations; but the effect of consolidation is to work a dissolution of the companies consolidating and to create a new one out of the elements of the former ones. Atlantic & Gulf R. Co. v. Georgia, 98 U. S. 359; Vicksburg & Y. C. Tel. Co. v. Citizens’ Tel. Co. 79 Miss. 341, 30 South. 725; Adams v. Yazoo & M. V. R. Co. 77 Miss. 194, 24 South. 200, 317, 28 South. 956, 60 L. R. A. 33; 7 Ruling Case Law, 155. Our statutes make special provision for the consolidation of insurance companies and prescribe the- manner in which it may be accomplished. Secs. 207.06 to 207.12, inclusive. Another statute, sec. 201:30, also provides for the merger or consolidation of insurance companies with foreign or domestic companies. Both of these statutes make quite elaborate provisions for such combination, and in each case, among other things, the approval of the insurance commissioner is required. It follows that it cannot be said that such combinations are contrary to the public, policy of the state provided the statutory requirements are complied with. No claim is made that the transaction in question was based on either of these statutes, and this tends to confirm' the view that no merger or consolidation was contemplated. We hold that the proposed transaction does not amount to a merger or a consolidation which would bring it within the provisions of the law relating to the merger or consolidation of insurance corporations. " The claim is .made by counsel for the insurance commissioner that in order to consummate the proposed plan it would be necessary for -the Louisiana Company to issue stock, and there is considerable discussion in the briefs concerning the Wisconsin and Louisiana statutes as to the — 537 — conditions under which stock may be issued and held by insurance companies; but as we have indicated, we regard the plan as an exchange of stock between stockholders, and it appeared from the evidence and the application that no new stock of the Louisiana Company was to be issued to ■carry out the proposed exchange and therefore the discussion of this objection seems irrelevant. . No one would question that before the enactment' of the so-called Blue Sky Law any holder of shares of stock in these two companies had the same.right to sell or exchange his certificate' of stock as any other chose in action. We are faced with the question whether there is any language, in that statute which restricted the proposed exchange. It is not necessary to discuss in detail the provisions of this elaborate statute. They have been to some extent examined-in our former decisions. Sec. 183.26, sub. (1) .(a) to (g) inclusive, relates to securities not affected by the act. One of these subdivisions of the statute reads as follows: “(j) The sale of any securities by the owner thereof for the owner’s account, exclusively, such sale not being made in the course of continued or repeated transactions of a similar nature by the owner thereof and such owner not being the underwriter of such securities.” In paragraph (q) of the section it is prescribed that if it shall appear to the Commission that the sale of any issue of securities described in certain paragraphs including (j) of the section may be unfair or inequitable or work a fraud on the purchaser thereof, it shall require the person issuing or selling the same to file a verified statement giving information as to matters specified in the paragraph and may make an order temporarily prohibiting the sale of the securities. It is further provided that after an investigation and a hearing, on the finding of certain facts the sale of the securities may be prohibited or conditions of sale may be prescribed. Provision is made for requiring the discon — 538 — tinuance of practices or representations that are found to be unfair or fraudulent, and under certain conditions named the facts ascertained may be presented to the attorney general or district attorney for action. Only a mere outline of this paragraph of the statute is here stated. This paragraph is included in the section dealing with securities not affected by the act. No action was taken by the Commission under this paragraph, but the proceeding was under provisions of the statute relating to the securing of permits for the sale or exchange of securities. It seems plain that the exchange of securities here contemplated was not “made in the course of continued or repeated transactions of a similar nature” by the owners of the certificates of stock and that they were not the underwriters of the securities within the meaning of paragraph (j) above quoted. The exchange was not to be effected by means of agents or brokers as defined by the statute. It seems to result that the securities and their exchange in the manner proposed were in no way affected by the statute and that neither the Railroad Commission nor the insurance commissioner had any jurisdiction to impede or impair the right of the stockholders under the circumstances to make the proposed exchange. No question as to the jurisdiction seems to have been raised by either party or called to the attention of the trial court. Nor was it raised in the argument or the briefs in this court. But the subject of the jurisdiction of administrative boards and commissions is always open to the courts for review. Borgnis v. Falk Co. 147 Wis. 327 133 N. W. 209; Porter v. Industrial Comm. 173 Wis. 267, 181 N. W. 317. It was said in Monroe v. Railroad Comm. 170 Wis. 180, 174 N. W. 450: “The Railroad Commission being a tribunal of purely statutory creation, its power and jurisdiction must be found within the four comers of the statutes creating it.” Even if there had been at any stage of the proceeding an express stipulation purporting to give the Railroad Commission and the insurance commissioner jurisdiction of the — 539 — subject, it would not have availed, since the jurisdictioñ of those tribunals as to subject matter is conferred by law and' not by consent. It follows that the judgment' of the trial court must be reversed. By the Court. — It is ordered that the judgment of the court below be and the same is hereby reversed, and the cause remanded with directions to the Railroad Commission to dismiss the proceedings. No costs to be taxed to either party, but the plaintiff to pay the fees of the clerk of this court.