Home Ins. Co. of New York v. Virginia-Carolina Chemical Co.

As to the Plea. SIMONTON, Circuit Judge (after stating the facts). The act of 1887-88 (25 Stat. 433) provides that no civil suit shall be brought before either of the circuit courts of the United States against any person by any original process or proceeding in any other district than that whereof he is an inhabitant, but where the jurisdiction is founded only on the fact that the action is between citizens of different states suit shall be brought only in the district of the residence of either the plaintiff or the defendant. The complainants are corporations of the state of New York, and the defendant, a corporation of the state of Virginia, can claim the right as against them to be sued only in the district of which it is an inhabitant, to wit, the state creating it. Railroad Co. v. Koontz, 104 U. S. 5, 26 L. Ed. 643. If, therefore, the present suit be brought in the original jurisdiction of the court, it cannot be entertained. But, if it be an ancillary proceeding, then the suit can be entertained, notwithstanding the citizenship and place of residence of the several parties. White v. Ewing, 159 U. S. 39, 15 Sup. Ct. 1018, 40 L. Ed. 67. Is this an ancillary suit? There are in this court, subject to its jurisdiction, and on its files for trial, certain cases at law brought by the Virginia-Carolina Chemical Company against many insurance companies, among them these complainants. The cases are several in their nature. This bill is filed by the complainants, alleging that by reason of the existence of certain equities which cannot be set up at law the prosecution of such suits will work manifest wrong and injustice to them; that these equities are common to all the suits; that by the very terms of the contracts- they are interdependent, and are involved, the one in the other; and that no recovery can be had against any one defendant at law without reference to- and comparison with the recovery against each of the other defendants. The question is not whether the proceeding is supplemental or ancillary or is independent and original in the sense of the rules of equity pleading, but whether it is supplemental and ancillary, or is to be considered entirely -new and original, in the sense which the supreme court has — 687 — sanctioned, with reference to the line which divides the jurisdiction, of the federal courts from (hat of the state courts. No one, for instance, says Miller, J., in Minnesota Ry. Co. v. St. Paul Ry. Co., 2 Wall. 633, 17 L. Ed. 886, would hesitate to say that according to the English chancery practice a bill to qnjoin a judgment at law is an original bill in the chancery sense of the word. Yet this court has decided many times that, when a bill is filed in the circuit court to enjoin a'judgment of that court, it is not to be considered as an original bill, but as a continuation of the proceeding at law. In Freeman v. Howe, 24 How. 460, 16 L. Ed. 749, the principle is thus stated: “A bill filed on the equity side of tfie court to restrain or regulate judgments or suits at law in the same court, and thereby prevent injustice or an inequitable advantage under mesne or final process, is not an original suit, but ancillary and dependent, supplementary merely to the original wit out of which it lias arisen, and maintained without reference to the citizenship or residence of the parties^ This principle is practically applied in Dewey v. Coal Co., 123 U. S. 331, 8 Sup. Ct. 148, 31 L. Ed. 179. This gas coal company brought its action at law against Dewey & Co. in a state court of West Virginia upon a coal contract. The case was removed into the circuit court of the United States for the district of West Virginia upon the ground of diversity of citizenship, the plaintiffs being a corpora tion of the state of New York. Pending this suit the defendants at law filed a bill on the equity side of the court against the plaintiff in the action at law and another corporation, the West Fairmount & Marion Consolidated Gas Coal Company, to whom the first-named company had assigned its property, setting up certain equities, and praying relief, among other things, that the action at law he stayed. The defendants in equity filed a demurrer and plea to the bill, challenging the jurisdiction of the court, in that some of the complainants were citizens of the same state as the defendant the Consolidated Gas Coal Company. The objection was overruled by the court, saying: “The suit in equity was an exercise of jurisdiction on tbe part of the court ancillary to that which it had already- acquired in the action at law. which it might well entertain according to- the rule adjudged in Krippendorf v. Hyde, 110. U. S. 276, 4 Sup. Ct. 27, 28 L. Ed. 145, and Pacific Ry. Co. v. Missouri Pac. R. Co., 111 U. S. 505, 4 Sup. Ct. 580, 28 L. Ed. 498. The plea is overruled.” The demurrer, as lias been seen, contains six distinct causes of demurrer. The sixth and last ground is for wgnt of equity in the bill. This will be first considered. The bill charges that the property insured, by reason of fraudulent misrepresentation and concealment, was placed at a valuation exceeding its true value 100 per cent.; that the contracts of insurance were made with reference to the value of the property at risk, and the liability of each complainant was measured by the proportion which the amount of risk assumed by it bore to the actual loss, taking into consideration the whole amount of risks assumed. The first question which arises is, can the question of the valuation of the property at risk be now in — 688 — quired into in view of the legislation of the state of South Carolina on this subject? Or, in other words, does not the legislation of South Carolina treat the valuation put upon the property by insurer and insured at the time of effecting the insurance as final and conclusive, and estop both parties from thereafter disputing it? The terms of the act (22 St. at Large, pp. 113, 114) are as follows: “No company or individuals writing fire insurance policies doing business in this state shall issue policies for more than the value to be stated in the policy, amount of the value of the property to be insured, the amount of insurance to be fixed by the insurer and insured at or before the time of issuing said policies, and in case of total loss by fire the insured shall be entitled to recover the full amount of insurance and a proportionate amount in ease of partial loss. Provided, twD or more policies written upon the same property shall be deemed and held contributive insurance, and if the aggregate sum of all such insurance exceed the insurable value of the property as agreed by the insurer and the insured in the event of total or partial loss, each company shall be liable for its pro rata share of said insurance. No statement in the application for insurance shall be held to prevent a recovery before a jury on said policy in case of partial or total loss. Provided, after the expiration of sixty days the insurer shall be es-topped to deny the truth of the statement in the application for insurance which was adopted, except for fraud in .making the application for insurance.” Approved February 28, 1896. It is contended that this act does not comply with the provision of the constitution; that each act must express in its title the subject of the act. Discussion of this point is unnecessary. The bill charges that the sum fixed in this policy was so fixed through misrepresentations, fraud, and concealment. We are discussing a demurrer. Fraud vitiates all contracts. This act itself excludes from the estoppel under the contract statements adopted through fraud. The complainants are not estopped from proving, if they can, fraudulent misrepresentation and concealment, and to this extent correcting the policy as to the value of property insured; and it may be well said that if, in 16 separate suits, the question of valuation be left to as many juries, we may have in each case a different valuation, and that just proportion secured to each company of its share in the Whole loss will be lost and destroyed. The clause in the policy bearing upon this point is as follows, provision having been made in another part of the policy that the insured shall maintain an insurance on the property equal to 90 per cent, of its cash value,- each policy further providing: “This company shall not be liable under this policy for a greater proportion of any loss on the described property, or /for loss by and expense of removal from the premises endangered by the fire, than the amount hereby insured shall bear to the whole insurance, whether valid or not, or by solvent or insolvent insurers covering such property.” In order, therefore, in each case to ascertain the amount to be paid by each insurer if liability exist, the policy must be reformed in so far as it states the value of the property insured; and then the proportion which the amount or sum each assumed bears to the entire insurance must be ascertained. If the statements of the bill in this regard are true, — and for the purposes of this demurrer we must take them as true, — then complainants have set up an equity — 689 — to maintain their bill, and they have no plain, adequate, and complete remedy at law. As to the other grounds of demurrer: The cases at law brought originally in the state court have been removed into this court, and a motion to remand them has been refused. It is the law, therefore, of this case, that those removed cases are wholly within the jurisdiction of this court, and that the state court has lost jurisdiction of them. Kern v. Huidekoper, 103 U. S. 493,26 L. Ed. 354. The causes and the parties being thus in this court, subject to its jurisdiction, the present complainants filed their bill setting forth certain reasons why they cannot obtain plain, adequate, and complete relief at law. The controversy being thus in this court, and it appearing by the facts stated in the bill that complete justice cannot be done to the parties to it without deciding upon these equities, it is competent for this court to call upon the defendant to answer these allegations of the bill, and in the meantime to desist from seeking relief at law, or in any other jurisdiction. It is not claimed that the circuit court of the United States has the right to enjoin further proceedings in an action in the state court simply because, in the opinion of the circuit court, the cause is removable, in which opinion the state court has not concurred. The state court is not bound to surrender its jurisdiction of a suit simply because a petition for removal has been filed. Stone v. South Carolina, 117 U. S. 432, 6 Sup. Ct. 799, 29 L. Ed. 962. The state court has the right to decide for itself whether, admitting all the facts stated in the petition for removal, the petitioner, as a matter of law, is entitled to the removal. Railway Co. v. Dunn, 122 U. S. 516, 7 Sup. Ct. 1262, 30 L. Ed. 1159. This being so, no injunction can issue from this court restraining the state court simply because, in ihe opinion of this court, the case was removable. But, allhough this is the law, still, if the state court refuse to remove the cause, the party seeking the removal may enter a copy of the record in the circuit court, and that court may, if it think proper, entertain jurisdiction, and pass on the merits of the case; the action of both courts being subject to review in the common tribunal, the supreme court of the United States. “The petitioning party has the right to remain in the state court under protest, *' * * or he may enter the record in the circuit court, and require the adverse party to litigate with him there, even while the state court is going on. Railroad Co. v. Koontz, 104 U. S. 15, 26 L. Ed. 643. In other words, these courts, co-ordinate in jurisdiction, and wholly independent of each other, cannot restrain each other simply because they differ upon the legal questions as to the removability of a cause. This court can go on, entertain jurisdiction of these cases at law, and enter full judgment thereon, notwithstanding that the judge of the state court thinks they are not removable. But this is not the question raised in this bill. Assuming that the law cases are within the jurisdiction of this court, the complainants in the present proceedings set up certain equities from which it appears that full justice cannot be had by trials at law, and that the interposition of a court of equity is needed. To this end they pray that the Virginia-Carolina Chemical Company be restrained from prosecuting these actions at — 690 — law now in this cóurt until these equities are considered and passed upon. It is an unquestionable exercise of the jurisdiction of the court over cases under its control. Surely, the fact that the cases have been removed from the state court notwithstanding the opinion of that court cannot deprive this court of the right to exercise this jurisdiction. It can, without doubt, go on, and try the cases, render judgment. If so, it can make use of all the methods courts employ to secure equal and exact justice in cases before them. But it is objected that the prayer of the bill goes further than this. It seeks also to enjoin the Virginia-Carolina Chemical Company from prosecuting its suit against the London Assurance Corporation, now in the state court, and admitted to be outside of the jurisdiction of this court; and also to enjoin the same company from prosecuting the removed cases in the state court. Now, the scope and purpose of this bill is not to enjoin suits in the state court because they are removable and have been removed into this court against the opinion of the state court. It is not an original bill filed with this intent. It is an ancillary bill seeking to enforce equities binding on the conscience of the Virginia-Carolina Chemical Company, which cannot be set up in the law cases, but which must be considered in order that justice be done. It is a bill filed to regulate suits at law in this court, and thereby prevent injustice, or an inequitable advantage under mesne process, not an original suit, but ancillary and dependent.” Freeman v. Howe, supra. It is, as has been said, a suit to enforce equities binding on the conscience of the Virginia-Carolina Chemical Company, rendering it improper for them in this court or elsewhere to enforce their strict legal rights under these contracts. These equities grow out of the contracts, which it is charged are interdependent with each other, not enforceable without reference to each other, rendering it necessary that the court should first pass upon equities common to them all before the liability of any one of them can be ascertained. Inasmuch as the London Assurance Corporation has the same common interest in these equities as the corporations in this court, and as full justice cannot be done without deciding these equities for it as well as the others, the Virginia-Carolina Chemical Company is required to refrain from prosecuting its strict legal remedies against it as well as the others, and this can be done in the exercise of the ancillary jurisdiction, which is not dependent on citizenship or amount in controversy. This case bears no resemblance to Haines v. Carpenter, 91 U. S. 256, 23 L. Ed. 345, in which it was sought by original bill in the federal court to stop litigation in the state court. Nor is it within U. S. v. Parkhurst-Davis Mercantile Co., 176 U. S. 319, 20 Sup. Ct. 423, 44 L. Ed. 485, a case in all respects similar to Haines v. Carpenter. In neither case was a federal question involved, and in both cases were attempts made to rob the state court of jurisdiction. In the present case it is alleged that the court cannot do full justice unless the London Assurance Corporation is made a party to the suit. “The injunction sought is in no sense a prohibition to the court of law in the exercise of its jurisdiction. It is not addressed to that court. It does not even affect to interfere with it. The process, when its object is to restrain — 691 — proceedings' at law, is directed only to the parties. It neither assumes superiority over the court in which these proceedings are had, nor denies its jurisdiction. It is granted on the sole ground that from certain equitable circumstances, of which the court of equity granting the process has cognizance, it is against conscience Lliat the party inhibited should proceed in the cause. The object, therefore, really is to prevent an unfair use being made of the process of a court of law in order to deprive another party of Ms just rights, or to subject him to some unjust vexation or injury, winch is wholly irremidiable in a court of law.” Story, Eq. Jur. § 875. Compare Cole v. Cunningham, 133 U. S. 107, 10 Sup. Ct. 269, 33 L. Ed. 538; Marshall v. Holmes, 141 U. S. 594, 12 Sup. Ct. 62, 35 L. Ed. 870. Assuming, for the purposes of the case before us, that the allegations of the bill are true, it would appear that this court, taking jurisdiction of the controversy, and looking to the distribution of the loss, can compel the defendant to bring the case of the London Assurance Corporation into this court. There remains the fourth ground of demurrer, — that the original actions were actions at law, in-which the present defendant, plaintiff in those actions, was entitled under the constitution to trial by jury; that this court has no jurisdiction, as a court of equity, by consoli dation of said actions in one equitable proceeding, to deprive the defendant of its right of trial at law before a jury. The gravamen of this bill is that in the actions at law complete justice cannot be done; that there exist certain equities which must be disposed of! before this end can be reached; that these equities are common to all the complainants; that by the terms of the contract, which is (lie same* with each of them, each complainant is vitally interested in the recovery which may be obtained against every other of them. These are that by the terms of this contract 90 per cent, of the value of the property should be insured; that each insurance company should bear its proportion of the loss; that this loss, having been ascertained, should be ratably proportioned among them, so that no one should bear more than its proper proj>ortion; that the first essential fact to be ascertained is the amount of this loss; that by reason of false and fraudulent misrepresentations and of fraudulent concealment the value of the property has been grossly overstated in the policies; that this loss for this reason must be established by judicial proceedings, and that it cannot be established in 16 separate suits at law without danger of — almost with the certainty of— injustice; that for this reason, and to avoid a multiplicity of suits, recourse must be had to the aid of a court of equity. If these facts be true (and for the purposes of the demurrer they are assumed to be true), we have the resort to the court of equity,- — a substantial thing. This being so, the seventh amendment to the constitution does not: apply. This amendment does not in any way affect the procedure of the court of equitv. Shields v. Thomas, 18 How. 262, 15 L. Ed. 368; Barton v. Barbour, 104 U. S. 126, 26 L. Ed. 672. It is said that the bill is multifarious. But each of the complainants has a standing in court. Their causes of action are not antagonistic. The relief which they pray involves in each case the same — 692 — questions, requires the same evidence, and leads to the same decree for all. Walker v. Powers, 104 U. S. 245, 26 L. Ed. 729. The demurrer, as well as the plea, is overruled. The defendants have leave to ánswer over.