FINANCIAL INDEMNITY COMPANY (a Corporation) et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; F. BRITTON McCONNELL, as Insurance Commissioner, etc., Real Party in Interest.
L. A. No. 23641
In Bank. Oct. 28, 1955.
October 28, 1955
Respondent‘s petition for a rehearing was denied November 23, 1955.
45 Cal. 2d 395
The judgment is reversed.
Gibson, C. J., Shenk, J., Edmonds, J., Carter, J., Traynor, J., and Schauer, J., concurred.
Harold W. Kennedy, County Counsel, and William E. Lamoreaux, Deputy County Counsel for Respondent.
Edmund G. Brown, Attorney General, Everett W. Mattoon, Assistant Attorney General, and Lee B. Stanton, Deputy Attorney General, for Real Party in Interest.
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
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
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 and 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.
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 com-
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.
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.
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
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.
CARTER, J.—I dissent.
The majority opinion holds that the superior court has no jurisdiction in an action which seeks declaratory relief and an injunction against the Insurance Commissioner who, it is charged, is threatening to abuse and exceed his statutory power with respect to assuming control over plaintiff insurance company purportedly because it is in an unstable financial condition. It is pointed out that the commission may seize a company if certain conditions exist either with or without a proceeding in court. (Ins. Code, §§ 1011, 1013.)
In the action of which the majority says the superior court did not have jurisdiction, the plaintiff alleges in its complaint ample facts to give the court jurisdiction. The complaint must be accepted as true as the question involved is solely whether the action is one in which the court has jurisdiction. It is alleged that the Insurance Commissioner has been investigating plaintiff since its organization and has claimed that plaintiff Vaughn is not a proper person to hold the stock of the plaintiff and that it was insolvent; that plaintiff is solvent;4 that during the commissioner‘s investigation, his subordinates “exhibited an extreme personal animosity to officers, directors, employees and counsel for plaintiff . . . and both the financial reports and the reports on the conditions of the company have been motivated by bias and prejudice, and a desire to accomplish the removal of G. Kenneth Vaughn and his family from the insurance business“;
“The financial condition of said plaintiff company is exceedingly strong and its net earnings and policy holders’ surplus have, and are, increasing substantially, and the defendants do not and cannot make any claim that the company is not now in a sound financial condition and solvent within the meaning of the Insurance Code. There is no claim that the public, policyholders, or creditors are or will be exposed to any detriment. . . .
“Defendants herein have never afforded to plaintiffs an opportunity to present their case before an impartial tribunal, either administrative or judicial, and have never issued any ruling or order directing plaintiffs to comply with or correct any alleged noncompliance with any provision of the Insurance Code.”
The authorities are clear that a person may have declaratory relief and injunctive relief against a public officer when such officer‘s acts will cause him to be deprived of constitutional rights, or when the officer is acting arbitrarily and outside the scope of the powers given to him by statute when such action will cause irreparable harm to the person. In Brock v. Superior Court, 11 Cal.2d 682 [81 P.2d 931], petitioner, the State Director of Agriculture, sought prohibition to restrain the trial in an action by plaintiffs against defendant director to have him restrained from enforcing the milk control act because he had failed to follow the law establishing the milk control area. This court denied prohibition and found that the trial court had jurisdiction of the action. We stated (page 684): “In support of their demand for an injunction against the director of agriculture, the plaintiffs allege that the director of agriculture failed to comply with the provisions of the Milk Control Act in the formation of said area and in the establishment of the amended Stabilization and Marketing Plan for the sale of milk and cream within said area.
“. . . The defendant in said action, the director of agri-
“Petitioner relies upon section 526 of the Code of Civil Procedure and section 3423 of the Civil Code. The fourth subdivision of each of these sections provides that an injunction will not lie to prevent the execution of a public statute by an officer of the law for the public benefit. But petitioner concedes, as we understand his position, that if it be determined after a trial that the officer is acting illegally, then it is within the power of the court to restrain his acts. These code sections therefore do not answer our present inquiry.
“. . . The case before the trial court in that instance was precisely like that involved in a recent case decided by this court where we held that as there were issues of fact tendered by the complaint in an injunctive proceeding, the trial court had jurisdiction to try these issues of fact, and that prohibition would not lie to restrain the trial court from issuing an injunction against an officer in an attempt to enforce a public statute, until these issues of fact were determined. (Agricultural Prorate Com. v. Superior Court, 5 Cal.2d 550 [55 P.2d 495].) In that case our decision upon this point is as follows: ‘In the injunction suit before the respondent court the plaintiffs therein made the claim that the prorate district in which the applicants were purporting to act as officers was never legally formed or organized in that the petition for the formation of said district was never signed by the necessary two-thirds of the lemon producers residing in said proposed district or zone, and therefore the commission had no authority to make its order organizing said district without an election being held therein to pass upon the question of
“We see no reason to recede from the position taken in the decision of that case. It appears to us to be the only reasonable conclusion that can be reached in proceedings of that nature. To hold otherwise would be to tie the hands of the court in cases in which great and irreparable injury might be done private citizens by officers acting under a mistaken belief of their authority.”
“‘To hold otherwise would be to tie the hands of the court in cases in which great and irreparable injury might be done private citizens by officers acting under a mistaken belief of their authority.‘” (Brock v. Superior Court, supra, 11 Cal.2d 682.)
Similarly, in the instant case the superior court had jurisdiction to determine whether the commissioner‘s threatened action was illegal. There can be no doubt that the injury to plaintiff insurance company will be irreparable if it is taken over by the commissioner. Its credit and standing will be seriously impaired.
The majority opinion states that plaintiff has its relief by an attack on the seizure after it has been accomplished (Ins. Code, § 1012) and that that remedy is exclusive. There is nothing in the Insurance Code which makes it the exclusive remedy as there was in the case of Modern Barber Colleges, Inc. v. California Emp. Stab. Com., 31 Cal.2d 720 [192 P.2d 916], relied upon by the majority. It must be remembered that plaintiff‘s action was for declaratory, as well as injunctive, relief and, furthermore, we held in California Physicians’ Service v. Garrison, 28 Cal.2d 790, 801 [172 P.2d 4, 167 A.L.R. 306], that “section 1062 of the Code of Civil Procedure expressly provides that the remedy through declaratory relief is cumulative and not restrictive of any other remedy provided by law.” The court was there speaking of an action wherein plaintiff sought to have the court declare that the Insurance Code did not apply to its members’ business.
I would, therefore, grant the writ of mandate prayed for herein.
Schauer, J., concurred.
Petitioners’ application for a rehearing was denied November 23, 1955. Carter, J., and Schauer, J., were of the opinion that the application should be granted.