Equitable Life Assurance Society of the United States v. Brown

Mr. Justice Peckham, after making the foregoing statement, delivered the opinion of the court. Even if a court of equity had jurisdiction in a case like this, it is yét proper to consider the history of the defendant subsequent to the filing of the bill by complainant, with reference to the results which might and probably would follow a decree of the court in accordance with" the demand of the complainant. The corporation is one of the largest in the world with its more than half million policyholders, its outstanding risks of an amount almost impossible to appreciate, and with assets and liabilities and surplus, reaching into hundreds of millions of dollars in amount. The defendant is in its nature a public institution, and the interests of its policyholders are directly involved in any proceeding looking towards its winding, up, and indirectly the interests of many hundreds of thousands of individuals connected with the policyholders as objects of their bounty. The resúlt of a stopping of this- institution and the winding up. of its business because, although not in necessary consequence, of the flagrant wrongdoing of some of its former officers and directors, would be most disastrous to the great majority of the people interested in its affairs. Taking all the averments of the bill together, there is not any foundation for apprehension as to the entire solvency of defendant. To place the institution in the hands of a receiver, while it is paying promptly all its obligations and with undoubted resources to continue to pay them, and is daily engaged in taking ' new business, under .other and different management, would be a premature and wholly unnecessary ending of the defendant, and one which it would be mild to characterize as *42 ruinous to the interests of hundreds of thousands of people, and really beneficial , to none. The enormous and very likely necessary. expenses connected with a receivership, its certain failure to give full satisfaction to all, and the very great delays that would accompany the granting of the relief asked, are strong reasons against granting it in the case of a defendant which is paying all its obligations as they are presented. In addition to all these objections, it has happened that since 1905 a new board of directors has been chosen, new officers placed in command and probably an' entirely new' policy adopted and followed. Although these last-mentioned facts have happened since the filing of the bill in 1905, nevertheless it is not improper to refer to them, as they only constitute a history of the defendant since that time. They are found in public documents in New York, filed and existing of record in its insurance department, and they are the sworn returns of the officers of the defendant made since the change in 1906. They may be referred to, not to contradict the averments of the bill, but to show the officers now in control of the management of the defendant, its present condition,, and the fact that it is now in full operation and in the daily discharge of-all its obligations as they are presented. The right, to an accounting in equity and the winding up of the defendant under these circumstances would have to be most clearly made out before such .relief would be granted. A court of equity is. bound to consider these facts before it would grant relief of the nature demanded. Such a court takes all the facts into consideration and the relative advantages and disadvantages of granting a relief which lies largely in cases of this nature in the discretion of the court, even if it be assumed that jurisdiction to grant the relief existed at all. Under these circumstances we proceed to inquire-as to the jurisdiction of a court, of equity in such & case as is presented by the bill. It might be here added that the history of the Lord case, which is referred to in the bill, is to be found in 57 N. Y. Miscell. Rep. 417, and on appeal in 126 App. Div. 907, *43 and a still further appeal is pending in the New York Court of Appeals. We do not regard the matter as material, as it only refers to the claims of the stockholders to own the entire surplus in the defendant, and to the alleged attitude of the defendant as to these matters, in not denying their claims. This gives no ground for equitable interference at the suit of a policyholder against the defendant of the nature herein demanded. As the questions in this Gase arise upon the defendant’s demurrer to the bill of the complainant, it is necessary to direct attention to the effect of a demurrer as an admission. We are not called upon to cite authorities for the statement that a demurrer only admits facts well pleaded in the pleading demurred to.- It does not admit the pleader’s conclusions of law, nor does it admit the correctness of any opinion set forth in the bill, as, for instance, in regard to the probable effect in the future of the continued control of the defendant by the interests existing therein up to 1906. Hence any construction placed by complainant upon the charter of the defendant and the-insurance policy issued by the defendant to the complainant is not admitted, nor is the allegation of the ownership of the surplus by the policyholders as alleged by the complainant, nor. any opinion which is expressed in the bill as to the ability of the defendant to continue business, nor is any other opinion as to future happenings admitted by the demurrer. Before discussing the merits of the case it is also proper to first decide what force is to be given the decisions of the highest court of New York with reference to the construction of the charter of the defendant and the policy of insurance issued by it. Greeff v. Equitable Life &c., 160 N. Y. 19. Although the charter was obtained under a general law of the State of New York relating to the incorporation of insurance companies, yet the construction to be given that act and the chatter obtained in pursuance of it pertains to the state courts just as if the charter were granted by a special act of the legislature.. Ever since its incorporation under the general law of the State of New York,-in 1859, the defendant has always done business *44 and had its general home office and its legal residence and ■domicil in that State. The insurance policy owned by com- , plainknt appears on its face to have been executed in New York and there is no averment to the contrary.. The decisions of the highest court of New York are therefore binding upon this court ag to the meaning and effect of the charter of the defendant, and as it is a'New York company and the contract is a New. York contract, executed and to be carried out therein, its meaning and construction as held by the highest court of the State will' be of most persuasive influence, even if not of binding force, ih the absence of any Federal question arising in the case. There is no such question here. Stone v. Wisconsin, 94 U. S. 181, 183; Park Bank v. Remsen, 158 U. S. 337, 342; Sioux City &c. Co. v. Trust Co., 173 U. S. 99. This principle has been so frequently decided that further reference to ad-, judged cases need not be made,. The suit is brought by complainant for himself, as well as all other policyholders and annuitants of the defendant who may choose to come in and join in the suit, and the company is the sole defendant. No officer of the company or stockholder therein, or any alleged debtor to the company is made a party, and consequently any averment of the continuance in power of the same persons in the board of directors or otherwise' is immaterial as a reason for the bringing of the action by the complainant in his own behalf, etc., to recover debts due ■the defendant, which, the defendant will not itself sue for. This is not an action of that nature and there are not present the necessary parties to -maintain it if it'were. The purpose of the averment, is probably to sustain the application for a re- ■ ceiver, made necessary, as alleged, by the wrongdoing of some-of the former officérs of the defendant. That, however, gives no jurisdiction for an accounting in equity as between a simple debtor and creditor and in the absence of any trust relation between them.. A mere creditor as such has no right to that remedy. We come then to a careful analysis of the other averments *45 in the bill, and it is seen that it is largely founded upon the theory of the existence of a trust in favor of the policyholders, past and present of the defendant, as against the defendant, its officers and stockholders, and it is asked that they, and each of them, be decreed to hold the funds and surplus, as they may be ascertained, as trustees for such persons as shall be declared to have interests in such fund and surplus, under the decree of the court to be entered -in the. case. The complainant alleges that this so-called surplus of the defendant belongs entirely to .the policyholders, after making certain deductions, and the defendant holds it, or, at any. rate, a large portion of it, in trust for them, and, that, such is i-he proper construction of the charter and the policy, and he also avers that defendant has not distributed it from time to time to the policyholders as intended by the charter and the policy; The various allegations in regard to waste, mismanagement and improper investment and reinvestment of the'funds of the defendant, and also the alleged fraudulent, conduct of the officers guilty of such acts, do not show any inequitable or. improper actual distribution of the fund as-among the policyholders themselves. Although the effect of such conduct has plainly been to pre-. vent the growth of the surplus to greater proportions than it has reached,' there is still no averment anywhere in the bill that the amount of the surplus that was, in fact, distributed was not fairly and equitably distributed to each of the policyholders, according to the amount of his policy and in strict accordance with the rules and regulations theretofore adopted by . the defendant for such distribution, which rules had been accepted by the complainant from time to time as such distribution was made. The fact, as alleged, that the amounts were paid to the complainant and accepted by him on the fraudulent representations of the officers that such amounts were all that were due, has no effect upon the question of the equitable and proper distribution, of the fund that was, as a matter of fact, actually distributed. Nor does it give a cause of action, of an equitable nature. These averments only show waste and mis *46 appropriation of the moneys of the defendant before they ever reached the surplus fund and before any distribution of it was made. In other words, they aver facts of mismanagement of the funds and wrongdoing by others, upon which a cause of action might arise against the officers and stockholders, or other persons guilty of such acts of wrongdoing and waste, in favor of the company itself. They lay no foundation for the jurisdiction of a court of equity in such a case, unless it appears that the relation between the policyholder and the defendant is that the latter is the trustee of the former by reason of the trust relation between them resulting from the insurance policy. The complainant’s contention, as above stated, that there is such a trust in the fund mentioned has never 'been regarded-as the law in the State of New York (Cohen v. New York Life Insurance Company, 50 N. Y. 610, People v. Security Life &c. Co., 78 N. Y. 114; Bewley v. Equitable Life &c., 61 How. Pr. 344; Uhlman v. New York Life Ins. Co., 109 N. Y. 421; and, to the same effect, Greeff v. Equitable Life Assurance Society, 160 N. Y. 19), nor anywhere else so far as any case has been cited on the subject. In the Uhlman case, supra, the plaintiff was the owner of a policy known as a ten-year dividend system policy, otherwise a “tontine plan” policy, which, it was averred, gave to the holder a special title to the funds derived from the payment of premiums on the policies of that kind and in the particular class to which the policy belonged.' The Court of Appeals of New York held that such claim was not well founded; “that it could not be said that the defendant is in any sense a trustee of any particular fund for the plaintiff, or that it acts as to him and in relation to any such fund in. a fiduciary capacity. It has been held that the' owner of a policy of insurance, even in a mutual, company,. was' in no sense a partner of the corporation which issued the poíicy, and that the relation between the policyholder and. the company was one"of contract, measured by the terms of the policy.” The holder of a policy of the nature of that referred to in the Uhlman case would be certainly as much entitled to claim that the company was a trustee for the holder as would be this *47 complainant. Indeed, the policyholder in the Uhlman case occupied a much stronger position for making the claim than does this complainant, who is the holder of an ordinary life policy, with rights to' participate in the distribution of the surplus according to methods, etc., adopted by the defendant, as already mentioned. The claim was, however, denied by the state court, following the decisions of the New York courts for many years. To hold that a trust is proved in this case by virtue of the charter and policy of insurance is to hold contrary to the decisions of the highest court of the State of New York for a long number of years past without a single decision the other way in all that time. We also think there is no ground for the contention on- the part of the complainant that he, as a policyholder, had any right to an accounting, and to compel the distribution of the surplus fund in other manner or at any other time, or in any other amounts than that provided for in the contract of insurance. By that contract he was entitled to participate in the distribution of some part of the surplus, according to the principles and methods that might be adopted from time to time by the defendant for such distribution, which principles and methods were ratified and accepted by and for every person who should have or claim any interest under the policy. It has been held that under such a policy how much of the surplus shall be distributed to the policyholder and how much shall be held for the security of the defendant and its members is to be decided by the officers and management of the defendant in the exercise of their discretion to distribute, having in mind the present and future business, and, in the absence of any allegations of wrongdoing or mistake by them, their determination must be treated as proper, and their apportionment of the surplus is to be re-' garded prima fade as equitable. Greeff v. Life Insurance Co., supra. The court further held that manifestly a discretion rests with the defendant in determining how much of the surplus should be distributed to the policyholders and how much should be retained for the security of the defendant and its members, *48 having in view the present and future contingencies of the business, and the court remarked that “there was no evidence or allegation that the plaintiff had been inequitably treated by the defendant as between himself and the other policyholders.” The frauds and mismanagement mentioned did not in themselves give a policyholder any greater right to a distribution than is mentioned in the contract, and the right depended upon the judgment and discretion of the company as to time and amount. Nor is there any possible reason for the'appointment of a receiver and a real, though not formal, dissolution of the company and the distribution of all its assets, because the fund is not as large as it ought to have been, owing to the misconduct of the officers, and because the defendant has not distributed as much' of the surplus as complainant thinks he is entitled to, because of such frauds and misconduct. It is contended, however, that the New York Court of Appeals has held that complainant is entitled to such relief as is demanded herein, and he cites as authority the Uhlman case, supra, and urges that provided it appear, by proper allegations (such as this bill contains) and proof, that frauds, misappropriation of the funds, etc., have been perpetrated by the officers or agents of the defendant, so as to prevent the proper accumulation of the surplus, the court will grant the relief demanded herein.. We think that neither the Uhlman nor the Greeff case decides any such principle as is asserted by the complainant. After holding, as already stated, that there was no trust existing between a policyholder and even a purely mutual company, reference was made in the former case to the contention of the defendant that the apportionment made by it, or under its direction, was absolutely and, at all events, conclusive upon the policyholders, it was said in the opinion that that was not an accurate statement, and that the plaintiff and others similarly situated had the right, upon proper allegations, of showing that the apportionment made by the defendant was not equitable, or had been based upon erroneous principles, and .he had the right to a trial and to make proof of *49 such allegations, and if true the court could declare the proper principles upon which the apportionment was to be made so as to become an equitable apportionment. The Greeff case simply adopted that statement in the course of the opinion, which is chiefly devoted to the discussion of other matters. There is nothing in either case to show that any other wrongdoing or fraud was in contemplation' of the court than that above mentioned, viz., that the proposed or actual distribution of the money as between the-policyholders themselves was not equitable, or was based on erroneous principles. Wrongdoing, waste, misapplication of funds and actions of that character, affecting the amount of the fund before distribution, were not held to furnish a ground of equitable jurisdiction for an accounting, and it was not held .that even frauds in the distribution itself as between policyholders, or the adoption of wrong principles for such distribution, would be ground of jurisdiction in equity. That question was not before the court, and was not decided. It was simply stated that it would afford ground of action, not necessarily ground for equitable jurisdiction. However, this is no such case, as the language used shows was contemplated in the observations of the court in the Uhlman case. So far as the averments in the bill go as to the purchase of the majority of the stock of the defendant by Mr. Ryan, and the execution by him of a deed of trust, we think.those averments have no tendency to prove the existence of facts material to the cause of action attempted to be. set forth in the bill. There is no ground of jurisdiction in equity, either for the accounting prayed for or for the appointment of a receiver to wind up the affairs of the defendant on account of the alleged insolvency of the defendant. The complainant at first avers defendant’s solvency, and that it is fully able to pay all demands from policyholders, arid to perform every contract made by the defendant. The-subsequent averment that the defendant is insolvent, because, as a conclusion of law asserted by the pleader, it is responsible to policyholders for excessive sums paid in the *50 way of salaries and fees, and also for sums of money lost conse- . quent upon-the fraud and waste of the directors or officers of the defendant, all'of which are too large for the defendant to pay when demanded, is not admitted by the demurrer, and is . not accurate as a conclusion of law. Whether such liability could be legally maintained or whether the defendant would be unable to pay the amount claimed from it when it was properly proved, and judgment duly recovered against it in an action for that purpose, is a mixture of a legal conclusion with a matter of opinion as to the future ability of the defendant to pay such liabilities. And the idea that the defendant itself is liable to policyholders for the frauds or wrongdoing set out in the hill and committed by its officers or members of its board of directors against the defendant and in théir personal interests, we regard as without foundation. Such a kind of future possible insolvency furnishes not the slightest ground for present legal action adverse to the defendant. Very likely the defendant could itself maintain an action against those who have been guilty of fraudulent conduct towards it, resulting' in financial loss to it, and, of course, those who' are alleged to be guilty would have to be made parties. ' No case is therefore made for an accounting or for a receiver based upon these allegations of the bill. Certainly the court could not give any judgment that the policyholders are the .owners of the so-called surplus. It may, be that they are.. The bill itself avers that the stockholders contend they are the owners of the surplus, or at least of some considerable part of it, and certainly no decree could be made on the subject of such ownership and against the claims of the stockholders, without their presence as parties. If it be held that there is no trust, then it follows that the suit cannot be maintained in equity on the sole ground of fraud. Such) a ground for the maintenance' of the. suit (even if' com-, plaiif^nt could otherwise maintain it) is a mere incident to the main ground, set forth in the bill. Equity does-not now take jurisdiction ih cases of fraud where the relief properly obtainable on that ground can be obtained in a court of law, and. *51 where, so far as necessary, discovery may be obtained as well as in equity. Rev. Stat., § 724; United States v. Bitter Root Co., 200 U. S. 451, and cases cited. Complainant also claims jurisdiction in equity on the ground that such an action will prevent a multiplicity of suits. But this is not a case for the application of. the doctrine. There can be no claim that the complainant is saved from a multiplicity of suits by the maintenance of this. A single action at law by him against the company would give him all the relief to which he might be entitled. If there are others similarly situated as to claims, they can themselves commence an action. The defendant is not in court asking it to take jurisdiction of its suit against others in order to prevent a multiplicity of suits against it or by it. It does not rest with complainant to urge as a foundation for his suit that the defendant may thereby be saved a multiplicity of suits by other parties when the defendant raises no objection to such possible suits and urges no such ground for jurisdiction in equity of the complainant’s suit. After a careful consideration of all the facts we are of opinion that no cause of action is alleged in the bill for an accounting or for the appointment of a receiver or for other equitable relief. The decree of the Circuit Court of Appeals is therefore' Reversed. Me. Justice Day, not having heard the case, took no part in its decision.