160
88 FEDERAL REPORTER.
agent having authority in the premises, or upon the part of the presept or former receivers herein, or of any attorney or representative of such receivers." The court below, in passing upon the exception taken to this finding, sustained the exception, and held that the Atlantic & Pacific Railroad Company was liable for a proportionate share of the penalty, costs, attorney's fees, interest, etc., incident to the litigation, and fixed such proportion at 19.03 per cent. as charged in the bill presented by the Southern Pacific Railroad Company to the Atlantic & Pacific Railroad Company. The learned judge based this determination on the ground that the evidence tended to show that Mr. Hazeldine, as solicitor for the Atlantic & Pacific Railroad Company, had authority to act as such solicitor for the company in respect to the matter of these taxes, and that he, as such solicitor, consulted with the legal representatives of the Southern Pacific Railroad Company in connection with the very taxes in question, and acquiesced in and cons.ented to the contest made by the Southern Pacific Railroad Company against the taxes in question. In this, we think, the learned judge was correct. Had the Atlantic & Pacific Railroad Company desired to avoid the additional penalty, attorney's fees, interest, and costs incurred by a failure to pay the taxes when due and when contested, it could have offered its part of the taxes, and thereby absolved itself from any liability in that direction. From the foregoing opinion it follows that the claim of the Southern Pacific Railroad Company for taxes for the fiscal year 1887...1888 should be allowed and paid by the receiver, amounting, after crediting certain snms previously stated, to the balance of $30,121.51, and that that part of the claim which relates to the proportion claimed for interest, costs of suit, attorney's fees, etc., be allowed as charged in the bill. The judgment and decree of the circuit court will be affirmed.
LIVERPOOL & LONDON & GLOnE INS. CO. et al. v. OLUNIE. HARTFORD FIRE INS. co. et al. v. SAME. HANOVER FIRE INS. CO. et al. v. SAME. AMERICAN FIRE INS. CO. et al. v. SAME. SPRINGFIELD FIRE & MARINE INS. CO. et at v. SAME. . (Circuit Court, N. D. California. June 27, 1898.) Nos. 12,557, 12,563, 12,564, 12,566, and 12,567. 1. EQUITY JURISDICTION -MULTIPLICITY OF SUITS-PARTIES-MULTIFARIOUSNE88.
A court of equity will, in a single suit, take cognizance of a controversy, determine the rights of all the parties, and grant the relief requisite to meet the ends of justice, In order to prevent a multiplicity of SUits, where a. number of parties have separate and individual claims and rights ot action against the same party, but all arise from some common cause, are governed by the same legal rule, and Involve similar facts, and the whole matter may be settled in one action brought by all these uniting co-complainants.
&. SAME-INEQUITABLE CONDUCT OF
The inequity which deprives a. suitor of a right to justice In a court of is not general iniquitous c9J1duct. unconnected with the act of tbe
LIVERPOOL k
LONDON k GLOBE INS. CO. V. CLUNIE.
161
defendant which the complaining party states as his ground of action, but it must be evil practice or wrong conduct in the particular matter or transaction in respect of which jUdicial protection or redress Is sought. .. SAME-ILLEGAL COMBINATIONS.
The fact that a number of foreign Insurance companies doing business In a state are members of an alleged 1l1egal combination to suppress competition, etc., w1l1 not prevent them from maintaining a suit to enjoin the state Insurance commissioner from 1l1egally revoking their cert1ficates of authority to do business in the state, and canceling their bonds. The federal courts are bound by the decision of the supreme couri of California that a statute of that state Is void, because, in disregard of an express constitutional limitation on the power of the legislature, It attempts to Impose a tax for municipal purposes.
4.
FEDERAL COURTS-FoI.LOWING STATE DECISIONS.
I.
FOREIGN INSURANCE COMPANIES-POWERS OF STATE INSURANCE COMMISSIONER.
The power of the insurance commissioner of California to revoke the certificate of authority under which a foreign company Is doing business In the state arises only (1) when such a company removes an action to a federal court, and (2) when It becomes Insolvent. Pol. Code. §§ 595, 600. He can cancel Its bond only when defective In form or substance, or when the sureties are financially Insufficient; and he has no power or discretion to do either merely on the ground that such company is a member of an megal combination to raise Insurance rates, or because It refuses to pay a tax which It claims Is Illegal. Pol. Code Cal. § 595, after enumerating certain duties of an Insurance commissioner, further requires him to "perform all otber duties Imposed upon him by the laws regulating the business of insurance In this state, and enforce the execution of SUCll laws." Held. that this does not enlarge his jurisdiction, or confer on him any authority to perform a duty not specified or to execute a purpose not sanctioned by the law.
6. SAME-CONSTRUCTION OF STA'!'UTE,
T. C. Coogan (Wilson & Wilson, W. S. and John Gar· ber, of counsel), for Bridgford & Clunie and Andrew J. Clunie in pro. per. (George D.. Collins and Eugene F. Bert, of counsel), for defendant. MORROW, Circuit Judge. Five bills in equity have been filed by 62 tire insurance companies, doing business in the state of California, against Andrew J. Clunie, insurance commissioner of the state of California, to restrain him from doing certain acts which, it is alleged, will cause the complainants irreparable injury. In bill No. 12,557 the complainants are 34 foreign corporations, viz. 21 incorporated under the laws of Great Britain and Ireland, 2 under the laws of the dominion of Canada, 7 under the laws of the empire of Germany, 2 under the laws of the republic of Switzerland, 1 under the laws of the colony of New Zealand, and 1 under the laws of the kingdom of Sweden. In bill No. 12,563 the complainants are 6 corporations incorporated under the laws of the state of Connecticut. In bill No. 12,564 the complainants are 10 com· panies incorporated under the laws of the state of New York. In No. 12,566 the complainants are 5 companies incorporated under the laws of the state of Pennsylvania. In bill No. 12,567 the com· plainants are 7 companies incorporated under the laws of the states of Massachusetts, New Jersey, Missouri, Minnesota, Wisconsin, Rhode and Louisiana. The questions presented for deter88F.-ll
·,
'88 ill'JIlDlllRAL
REPORTER.
subStantially, the same, and \vill ",:,' ' ' The bills allege that the complainants are co,rp<?rations formed for tAepurpose of insurJa,g41gain$tloss or damage by fire, and are engaged in carrying on Ithe business of fire insurance in the state of QaJifornitt; that, the business, each' of them, in accordance with procured from the insurin a certi,ficate of authorance commissioner of ity, authorizing it to tJ,'anaa,ctji}.sura,nce busine,ss in the state, and paid to the commissioner therefor the sum of $20 for each certif· icate as required by laW) 'that these certificates are still in force, and have not been canceled, 'revoked, surrendered, or in any wise at all the times menimpaired; that each, of tioned, in t4e cornplaint, was, and has continued to be, and is, fully solvent; that they have not at any time transferred or caused to be transferred to the United States circuit court any action commenced against', them" or' them, in a, court, of the state of California; and that they b,aveanm times complied with the laws of the state. ,The bills allege, further, that in the year 1885 the legislature of the state of California passed an act entitled "An act to require the payment of certain premiums to counties, and cities and counties, by fire insurance?ompariies not organized under the laws of the sta'te, of, California, bl,1t doing business, therein, and providing for the disposition of sucb premiums"; that, by its terms, this act purported to require the agents of corporations not incorporated under the laws of this state, but carrying on the business of fire insurttnce therein, to pay to the county treasurer of eV,ery county, or city and county in this state, for the use and benefit of the fund of said county, or cit' and county, on the first Monday in De,cember of each a Sum equalto 1 per cent. upon the amounts of all premiums which; during the year or part of a year ending on the last preceding Monday of September, should have been received by SUCh, ageritor person, or any other person or agent; actiilg during such' corpo'ration so engaged been agreed to be paid to such in such buSiness, or should corporation b,r' 'its ageJ;lts, 'for any'insurance effected or agreed to be effected by tmch corporation within the lilnits of such county, or city and cQunty; that thisaetis in, viq1ation of the constituti9u of. the 'state' ot, California, and is void, and has been so adjudged by,t1+e supreme court"ot the state of California;, that, nota'ct, the as insurance withstanding the iuvalidity of, commissioneri"claims and the !let 'of the legislature is valid, ',Rnd' that all foreign 'corporations ,carrjing on. the business Of :tire insufance'in, this state .ateunder obligations to pay said and cIaiI)lS an<lasserfs'tliatjJb case'<>f failure 139.10 do, such foreign corporationsma;r and 'Should' be 'prevented from carrying ontlIe busihes's ,of,ffre'insuI:ance in this s,tate; 't?-e,defendant,its'ip.surance conlJllissioner, asserts,that he has pQwer andautn!l,rityconfeJ:'r¢d"nponJjiinbtthelaws 'of the state, as sU¢h insuranc,e' commissitl'lleri ,to enfQrpe thk, ,payment by said foreigI). corporatiohs 'of"suc-h ,·taxes,:o.-r, faiting:iti sucb payment, to exclu'de ;f
in
LTVERPOOL & L()I¥DON &,
V. CLU:ilE.
such corporations. from carrying, on tne businessof,fire, in this state; that none,Qf. paidau.y,taxelJ, o;pel'cen!ages required to, be paiu act of the legislature, Slllce the year 1885; ,that the amount-p,f such taxe,s,and reIll:aining unpaid, andwhicll would be ,due and payable by the com·, plainants if the said act 0.:+, the legislat\}re were valid, .is the sum of $278,000 ,and upward; "that, the defendant, as illl:lUrance commisrespect to the sioner, demanded from each of the complainants, respectively trapsacted by them, payment of said taxes accrued si,nce the year 1-885, and demanded that such pi,lyment be each, of the complainants cease the transaction ot made, or insurance business in this state on or before the 1st day of Feb· ruary, 1898; that the defendant thr:eatens and intends, in case said taxes be not paid as demanded, to revoke the certificates of authority held by the cOlllplainants,.and forbid them from transacting the business of fire insurance in this state, and threatens and intends, after revoking said certificates of authority, to give notice to the public, by advertisements in new!,\papers, that said certificates have been revoked, and that complainants are forbidden to transact the business of fire insurance in this state, and that all policies of insurance and contracts made by them thereafter will be null and void; that complainants have been transacting the business of fire insurance in this state for a number of years; that each Qf them has established agencies throughout the state of California at divers places, and that each of them has expended large sums of money in establishing said agencies, and in advertising their business, and in providing supplies therefor; that each of the complainants has' a large and valuable business in the state of California, of the value of $20,000 and upward; that if the defendant be permitted to carry his threats into execution, anl;! revoke said certificates of authority, complainants, and each of them, will be obstructed in the conduct of their business, their customers and the public will be deterred from accepting their policies of insurance, and will insure their property with other insurance companies, and that the business of each of the complainants, at present large and valuable, will be utterly ruined and destroyed; that if the defendant be not restrained by injunction, and 'be to carry his threats into execution, multiplicity of suits will result, in that each of the complainants will be compelled to commence an action for damages against the defendant, and in that the defendant will commence actions to recover penalties against the' agents of each of the complainants continuing to pursuant to the provisions of section 596 of the Political Code of the state of California; that the complainants are without adequate remedy at law in the premises; that the injurY,threatelled to the)ll is irreparable; and that the damages which will be sustained by them are difficult or im:(lossible of exact ascertllinment. The prayer of the ,bill in case No. 12,557 is that it be. adjudged by the decree of the court that the act of theJegislature of 1885 isuul1' and void, and t4M. the comnot under any obligation to pay the taxes or percent.therein itientioned, either as a tax or as a .'condition.. of their, , ! -;' . " . . .'. ' .! .
164
doing 'the business of fire insurance in this stater that the defend· lUit 'enjoined and. restrained lrom' revoking the' certificates of au· th6ritY,or any of them, ,issued to the corilplainants, or from in any Ihannerobstructing or interfering with the complainants, or any of them, or their agents, in the transaction of fire insurance business in the state of California, and for a writ of injunction pendente lite, restraining the defen.dant from doing: aI).y of the acts mentioned in the bilr of complaint. ' The bill of complaint in case No. 12,557 was filed January 27, 1898, and on the same day an order was issued requiring the defend· ant to show cause, on February 7; 1898, why an injunction should not isSlie as prayed for in the bill'of complaint, and in the meantime the defendant was restrained frotll doing any of the acts or things mentioned in the bill of complaint, and threatened by him, and from revoking any of the certificates of authority theretofore issued by the insurance commissioner of tlie state of Calitornia to the complainants, or any of them, and from interfering with or obstructing the complainants, or any of them, or their agen.ts, in the transaction of fire insurance business in the state of California. After the filing of the bill, and after the order tl:l show cause had been issued and served, to wit, on the 28th day of January, 1898, the defendant ap· peared before the judge of this court'in chambers, and asked for and obtained a modification of the order, striking therefrom the provision restraining the defendant from interfering with or ob· structing the or any of them, or their agents, in the transaction of fire insurance business in the state of California. On. February 7, 1898, the complainants appeared, and flIed a supplemental bill of complaint, in which it is alleged that the modifica· tion of the restraining order was obtained at about the hour of 3 o'clock p. ,III. on Friday, the 28th day Of January, 1898, and that at the hour of 12:30 o'clock p. m. on Saturday, the 29th day of January, 1898,the defendant made and filed in his office an official order or document, wherein he recited that it appeared to him that the bonds theretofore given by the complainants, and each of them, were insuffi· cient and invalid, and that be, as. insurance commissioner, by virtue of the powers vested hi him ,by laws of the state, did thereby adjl1dge and determine each, and eV'ery of said bonds to be invalid and insufficient, and, accordingly, that each and every of the complain. ants ahd their agents' were therefore: required to forthwith renew valid and sufficient bonds duly approved said bonds by by him in place thereof; that said order contained no other matter or information than 'as herein stateo. save the names of the companies whose bonds were declared tOQe invalid, their agents, and the dates of filing the same, and thatit,i,nno wise indicated wherein or for what reasons the said bomis,. or determined to be invalid 0t: insumcient; that, upon the complainants being notified by the defendant that he claimed that their bonds were invalid and insuffi· cient, their attorneyscalledupop,the defendant, and inquired in what respect their bonds were invalid and insufficient; that the defendant refused to give any reply other than to refer to the order which he had made; that inquiry was made as to whether it was claimed
LIVERPOOL tit I.ON.lI,jN' &: GLOBE INS. CO. V. CLUNIE.
165
by him that any of the sureties upo:b.any of the bonds were insolvent or insuipcient in point of financial capacity, to which inquiries the defendant refused to make answer save to refer to the order he had made; that the defendant was requested to furnish a form of a bond or specify the terms of a bond which would be satisfactory to him) with which request the defendant refused to comply. It is further alleged that on the 30th day of January, 1898, the defendant made the following statement, well knowing and intending that it would be published in the newspaper, and thus give widespread circulation throughout the state: "1 hav,e'made my order, and my future action depends upon what the in· surance 'companies may have to say. Do I think they will furnish new bonds? I think they will, but whether I will approve them is another question. If the bond is not acceptable, I have the right to reject it, and deny to tiJ.e company a cel·tificate to do business in the state. I shall eertainlytefuse the' bonl'! of any company which is in arrears for the tax provided by the law of 1885. They claim, of course, that this has been declared by the supreme court. Well, I don't dispute that. I am aware that the supreme court decided against the law on tbe ground that it was an attempt on the part of the legislature to levy a municipal Of course, under that ruling it would be absurd to undertake the collectiOn of the tax by process of law; but,if the companies don't desire to comply with what the law intends, there Is no reason they should not be barred from doing business here."
It is alleged that the bonds were in strict accordance with the laws of' the state, and in all respects valid and sufficient, and each for thesl:mf of $2,000; that prior to making the order of January 29, 1898, the defendant did not make investigation of the facts concerning the'alleged invalidity or insufficiency of sucb bonds, and did not, in fact; exercise any judgment '01' discretion in relation thereto; and that' no fact 01' circumstance showing, or tending to show, the invalidity or insufficien'cy of said bonds, or any of them, was ascertained by. or brought to the knowledge of the defendant, or existed in fact. The bill contains further allegations de:nying the good faith of the defendant in his statements and actions respecting the validity and sufficiency of the bonds, his refusal to approve new bonds, and his expl'essed intention to'refuse to approve any of the new bonds pre pared and executed by the complainants unless they shall first pay the taxes attempted to be imposed by the act of 1885. The prayer of the supplemental bill is that the defendant be enjoined and restrained fromfurth'ep declaring or asserting to be invalid or insufficient the complainants' bonds, or any of them, and from instituting or causing to be instituted, or from inciting others to institute, any suits, actions,oI' proceedings against complainants, their agents or brokers,orany of them,and from in any way obstructing or interfering with complainants, or any of them, or their agents, in the transaction of fire insul'ancebusiness, and for a writ of injunction pendente lite restraining the defendant from doing any of the acts mentioned ip the supplemental bill. A second order was thereupon. issued, requiring the defendant to sh'ow cause, on February 14, 1898, why a writ of injunction should not issue as prayed for in the supplemental bill; and, pending the hearing, the' defendant<, was restrained from further declaring or· asserting the invalidityordnsufficiency of complainants' bonds, and from in a.ny manner obstructing or interfering
!'.:',J
with' the: complainanUj, Qr;81DF Qf rthem, ol'ltheir.fl,gents, the tieD ;of tire insurance . '; , r i , I. , .It ,Is: insisted. ,on behllH of the 'defenda.nt that· the .of.the legislature,of, 1885. Is not ,uulbtnd void,and Dot in v:l01ation of constitution of. the or· of the constitution. of. United States, that itil:;,a yalidandsubsistillg condition precedent tb the transaction of bU$ine/Ss in said .state by the corp9rations which it Jaffect$. The defendan!tihas, ..l,\ow.eyer, in response to the .order to show cause, :61eda.,,0Iumi;Jilous'afJidavit, in which );le alleges, among other things, that, as insurance commissioner,he d()es not claim or assert, and never has claimed or. asserted, that he has power and authority cohferred upon hilU, by the laws of the stateof California, tQ enfor.ce the payment by foreign corporations of the taxes provided fOr" by the Sl:l,id act of tije legislature; or, failing in such payment, to exclude such corporatio.ns from carrying on the business of fire insurance in the state; thM;asinsurance commissioner, he does not threaten or intend, and has Iiever th'reatened or intended, in case said taxes be not paid on or tlle 1st day of February, 1898, to revoke the certi:6cates of authorJt,y' held by the compiainants, or to forbid them ft'om transacting the business of fire insunance in the state; that he will not carry any of the thl'ell fS referred to ,in the bill into execution,nor' will he revoke any of the certificates ;of any of said such complainants(nor will he:givepublic 'notice that or any of theIP, n()r threats inth execution or revoke warn all or any persons tha:tpolicies:of insurance OJ1·otber contracts made by them thereafter will be null and void. WUhrespect to the matters set forth in the supplemental bill of complaJ,nt,defendant alleges that no one of the complainants gave a bond pursuant to the provisions of section .623 of the Political Code of'Oalifornia; that defendant, in· rejecting the bonds offered and by the cOJUplain· ants, and in holding them to be insufficient andjnvalid, did so after due examination and investigation into the' matter, and in the exercise of discretion conferred !upon him' by lilW. 'This allegation is repeated in other forms, but, in substance, the claim of the defendant is that, in deClaring tlie- 'bond'S of thecornplainants to be invalid and insufficient, he made full and complete investigation of the;:facts concerning their' in;validity and inllwfficiency, and. did, in fact, exercise his official judgment.and in relation thereto, and. did ascertain facts and circumstances showing, and tending to show, the invalidity and insufticiency of each and' aU of said bonds, and that he is ready and willing to appro"e of .valid and sufficient bonds when furnished by insurance.compMiesauthorized to.do busi· nessundertheJawB of the·state." The defendant further alleges that ,.the complainants shGuld not·,be:heard nor ·.permitted to .prosecute or maintain these, actions against the defendant, ·for the that the complainants are now,and. have been.fol" many years, tranS8,cting ,insullance'business in· the state:of CalifQJ.'nia as. members of. a certain illegal combination and compact known andidflS;ig:n.ated by the; name of the "Board of Fire· Underwriters of thel that the main purpose of,this: 'organization is to preventan<l competition r and to fix, the in the insurance. business, .to. 'cont,rol
LIVERPOOL & LONDON & GLOBE IBS. 00. V. CLUNIE.
167
rates of premiums to be charged on insurance, to regulate and pre· vent rebates, to fix the compensation for insurance business, to regu. late premium and to appoint agencies;' that seven·eighths of the insurance companies authorized to transact business in this state are nlembers of this combination.' The defendant Bets forth in full the constitution of the Board of Underwriters of the Pacific, ilnd claims that it necessarily results ther.efrom that the ants are engaged in carrying on business in an unlawful manner, and that the action of the complainants against the defendant is in furtherance of sneh unlawful interference; and,as evidence of the truth· fulness 'of this charge, he ['efers to a circular dated February 24, 1898, addressed to the local fir'e insurance agents in this state by the Board of Fire Underwriters onhe Pacific, concerning the action of the insurance commissioner in declaring the bondsot the complainants invalid, the proceedings in this court, and the fact that the companies are conducting business as usual. A preliminary objection has been made b,Y the defendant that the bills are multifarious, on the grounds that, while it appears that the complainants are all interested in the question involved in the controversy, their interests are otherwise severable, distinct, and independent, and that they are therefore not entitled to unite in these several actions. As this objection is directed to matters appearing on the face of the bills, it should properly be raised by demurrer. It is, however, urged as a parol exception to the legal sufficiency of the bills under rule 67 of this court. The exception cannot be sustained. A court of equity will, in a single suit, take cognizance of a controversy, determine the rights of all the parties, and grant the relief requisite to meet the ends of justice in order to prevent a mul· tiplicity of suits, where a number of persons have separate and indio vidual claims and rights of action against the same party, but all arise from some common cause, are governed by the same legal rule, and involve similar facts, and the whole matter may be settled in one action brought by all these persons uniting as co-plaintiffs. Porn. Eq. Jur. §§ 243, 245, 255, 269; Libby v. Norris, 142 Mass. 246, 7 N. E. 919; Osborne v. Railroad 00" 43 Fed. 824; Railroad 00. v. Gibson, 85 Ga. 1, 11 S. E. 442; Sang Lung v. Jackson, 85 Fed. 502, 504; Smyth V. Ames, 169 U. S. 466i 18 Sup. Ct. 418. 'l'he case of Scott v. Donald, 165 U. S. 107, 17 Sup. Ot. 262, cited by the defendant as sustaining his objection, is, in my opinion, not opposed to this doctrine. _It appears in that case that James Donald, a citizen of the United States, and of the state of SouthOarolina, in his own behalf and on behalf of all other persons in the state of South Oarolina as importers for their own use and consumers of wines, ales, and spirituous liquors, theproducts of other states and foreign countries; filed a bill in -equity against J. M. Scottet aL, clajming to act as constables of the state of South Carolina, and all other persons whomsoever claiming to a,ct as constables, or as county sheriffs, rnunicipalpolicemen, or officers county sheriffs, or in any capacity whatliloever under or by virtue of certain act Qf the legislature of· the state of South Carolina. The action was to reo strain the defendants from forcibly entering or attempting to search
88 FEDERAL, REPORTER.
house of the plainti.£( for liquors of the character men· tioned, and from hindering an4 preventing the plaintiff or any other person. from importing,holding:possession, and using the said liquors so imported. A preliminary injunction was issued as prayed for in the bill of complaint, andaiterwards, upon the pleadings and agreed statement of the facts, the injunction was made perpetual. In the supreme court of the United States, upon a writ of error, the decree was affirmed, but restricted to the parties named as plaintiffs and defendants i;n the bill. The objection to the decree as to parties J}ot named as plaintiffs was tlIat as to them the complainant assumed to act in a representative capacity for a class of numerous persons situated like himself with respect to the matter in controversy. The coart held that such a state of facts was too conjectural to furnish a basis upon which a court of equity ought to grant an injunction, meaning, of course, an injunction in favor of plaintiffs, and binding upon defendants not named in the bill; for the court expressly held that the complainant was entitled to an injunction against those defendants who had despoiled him of his property, and who were threatening to continue to do so, and upheld the decree of the circuit court to that extent. In the present case the plaintiffs do not act in a representative capacity, but all are parties to the several bills, by II classification under which the plaintiffs in each suit 4ave the same, corporate rights and are under the same corporate obligations with respect to the business in which they are engaged. In.Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, the supreme court had before it t1.Iree cases involving the constitutionality of an act of the legislature of the state of Nebraska, regulating railroads, classifying freight!!" fixing reaso,nablemaximum rates, etc. There, as. here,. all the plaintiffs were in the SUbject-matter of the controversy, but were classified in three suits with respect to their rights certain corporate franchises. The opinion of the. court with respect to the question as to what community of interests will entitle plaintiffs to ul)ite in one action to avoid a multiplicity of suits is peculiarly applicable to the facts in the cases at bar, and appears to determine the question beyond controversy. The court says: "In these cases, the plaintiffs, stockholders In the corporations named, ask a decree enjoining the enforcement of certain rates for transportation, upon the grollnd that the statute prescribing them Is repugnant to the constitullon of the United States. Under the 'J,rinclples which in the federal system distingUish cases In law from those in equity, the circuit court of the United States,' 'slttln'g IIi' equity, can make a comprehensive decree covering the whole ground ofcpntroversy, and thlljJ avoid the multiplicity of suits that would inevitably al;ise under the statute. The carrier Is made liable not only to individual person's fQr every act, mil,tter, or thing reqUired to be done, but to a fine of from $1,000 to $5,000 for the first offense, ft'om $5,000 to $10,000 for the second offense, from $10,000 to $20,000 for the third offense, and $25,000 for every'subsequent offense. The tranSactions along the line of anyone of these railroads, opt of which causes of action might arise under the statute, are so numerous and varied that the .lIlterference of equity could well be justified upon the ground that a general decree, accordlngto the prayer of the bills, would avoid a multlpllclty '/)fsUits, and give a remedy more certain and e·fficacious than could be given In any proceeding Instituted against the .company in a court of law; for a cOllrt of law could only deal with each sep-
LIVERPOOL .t LONDON .t GLOBE INS. CO. V. CLUNIE.
169
arate transaction Involving the rates to be charged for transportation. The transactions of a single week would expose any company questioning the validity of the statute to a vast number of suits by shippers, to say nothing of the heavy penalties named in the statute. Only a court of equity Is competent to meet such an emergency, and determine once for all, and without a multiplicity of suits, matters that affect not simply individuals. but the interests of the entire community as involved in the use of a public highway, and in the administration of the affairs of the quasi public corporation by which such highway Is maintained."
It is further objected by the defendant that the complainants should not be allowed to come into a court of equity for relief; and in support of this objection he invokes the maxim that he who comes into a court of equity must do so with clean hands. The inequitable conduct charged against the complainants is that they are members of an illegal combination and compact known and designated by the name of the "Board of Fire Underwriters of the Pacific"; that the main purpose of this association is to prevent and suppress competition in the insurance business in this state, to control the fixing of premium rates to be charged on insurance, to regulate and prevent rebates, to fix compensation for insurance, to regulate premium collections, and to appoint agencies; that seven-eighths of the insurance companies authorized to transact business in the state are members of this confederation. In opposition to this charge, the affidavit of Holla V. "Vatt, who is the general manager of the Royal Insurance Company and the Queen Insurance Company, and also a member of the executive committee of the Board of Fire Underwriters of the Pacific, alleges that the last-named association is not an incorporation or association formed for business purposes, and is not conducting any independent business on its own behalf; that it is merely the agent of the several insurance companies carrying on business in this state which are members thereof for the more convenient transaction of business between themselves; that it has not nor does it attempt to exert any influence or control over persons or corporations who are not members thereof; that its purpose is not to stifle competition, nor to restrict the amount of insurance business done, but, by co-operation, to induce owners of property to take greater precautions to avoid loss and damage by fire, and to adopt inventions and other means to that such inducement being effected by reducing rates of premium; also to prevail upon the several municipalities of the state to maintain fire departments, and adopt means and inventions of preventing and suppressing loss by fire, to assist the public authorities to, prosecute and condemn persons guilty of arson, and by divers ot4er' means and ways to decrease the amount of loss by fire, and to reduce the hazards of the fire insurance business, and also to establish rates of premium which are reasonable and uniform and only fairly remunerative, based upon the combined experience of all the members thereof; that a large number of insurance companies doing business in this state are not members of said Board of Fire Underwriters; that said insurance companies so doing business in this state, and which are not members of said association, have in fact the capacity to transact all the insurance business in this
170;
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, 88,FlIlDERAL"RlIPORTJllR.
, J.
state if the same were intrusted, to ,them, and might' do so with safety themselv,es, other insurance companies in the States; in,. ;'\Yhich there are, in l75 ortbereabout. !tiwilI not be necessary to enter into a discussion of the facts thuspre'sented for the purpose of determining the legality of the Underwriters in this action, or to ascertain how far its acts are open to just criticism. It is manifest that, if such a controversy is disclosed, it is foreign to the one 'now before the court.·: The maxim that he who comes into equity ml,lst come with clean hands has its limitations. It does not apply to every unconscientiousact or inequitable conduct on the part of the complainants. The inequity which deprives a suitor of a right to justice in a court of equity is not general iniquitous conduct unconnected with thcact of the defendant which the complaining PIlrty states as his ground or cause of action, but it must be evil practice or wrongcoIfduct in the particular matter or transaction in respect to which judicial protection or redress is sought. Woodward v. Woodward, 41 N. J.Eq. 2'24, 4Atl. 424; 1 Pom. Eq. JUl'. 399. The declarations of the defendant, in his affidavit, disclaiming all power and authority as insuranGe commissioner to .enforce the payment of tbe taxes provided for by tbe act of the legislature of 1885, and the power to exclude foreign insurance c9rporations from the state who fail to pay sucb taxes, and his further disclaimer of any intention to revoke their certificates of authority to trapsact fire insurance business in the state, would dispose of that feature of the controversy, but for the fact that the defendantinsists that the act of 1885 is constitutional, and a valid and subsisting condition precedent to thetransactionof business by the corporations to which it relates, and the fact that prior to the commencement of these suits he had so notified the 34 foreign insurance companies constituting the complainants in case No. 12,557, officially in writing, and had demanded that they should forthwith comply with the terms of the law, and make tbe payments therein required, or that they should cease the transaction of fire insurance business in this state. This notice called the attention of the insurance companies to section 595 of the Political Code of the state, providing that "tbe insurance commissioner * * * must issue a certificate of authority to transact insurance business in this state to any persons in a solvent condition, who have fully complied with the laws of this state, and are in no wise in arrears to the state, or to any county or city of the, state, for fees,' licenses, taxes, or penalties accrued upon business previously transacted ,iu' the state." The notice also called attention to the fact that in'thesamesectiou it was made the duty of the insurance cOD1miBSioner:tb perform "all other duties imposed upon him by tbe laws regulating the' business of insurance ,in tbis state, and enforce the execntiou" iof ',such, laws,"" and that, in section 596, of the same COde/it Walf)!H'.ovided that '''no person or company;tnust transact in. 'tbisstate without first p1'(i)Cliring from the iUt SUl'ance commissioner R'certificate of authoi'ity,as in this chapter provided." This Botlee was issued from tbe.office'df,tliecommissioner on' ,Detember 31,1897, and does' bot'appear' to recalled or
LIVERPOOL &; LONDON &; GLOBE INS. CO. V. CLUNIE.
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suspended except in so far·:as it maybe deemed to be inconsistent defendant's affidavit on the with the declarations contained in -present hearing. Moreover, the defendant, in declaring the bonds of all the complainants insufficient and invalid, on the 29th day of January, 1898, without previous notice, undertook to deprive the complainants of their authority to transact business in this state, and to compel them to furnish new bonds and to procure new certificates. No reason was given in the order for this action, and the charge that it was an arbitrary proceeding is supported by the fact that the bonds which the defendant declared insufficient and invalid were made out on forms prescribed by the insurance commissioner of the state, and two of them had been previously accepted and approved by the defendant himself. It appears, further, that, on the 30th day of January, 1898,. the defendant made this declaration: "I have made my order, and my future action depends upon what the Insurance companies may have to say. Do I think they will furnish new bonds'! I think they will, but whether I will approve them Is another question. If the bond Is not acceptable, I have the right to reject It, and deny to the company a certificate to do business in the state. I shall certainly refuse the bond of any company which is In arrears for the tax prOVided by the law of 1885. They claim, of course, that this has been declared unconstitutional by the supreme court. Well, I don't dispute that. I am aware that the supreme court decided against the law on th\! ground that It was an attempt on the part of the legislature to levy a municipal tax. Of course, under that ruling it would be absurd to undertake the collection of the tax by process of law. But, If the companies don't desire to comply with what tile law intends, there Is no reason why they shQuld not be barred from doing business here."
It is manifest from this statement that the original purpose of the defendant was to compel the insurance companielil not incorporated by or tinder the laws of this state to pay the taxes provided for in the act of March 3, 1885; and, notwithstanding the positive assertions he ,of the defendant in his affidavit to the contrary, it is not has entirely abandoned that purpose. There is, indeed, some ground for believing that he is endeavoring to accomplish indirectly what he is. not. able to accomplish directly, and it therefore becomes important to determine preliminarily the validity of the act of March 3, 1885. The COI;lstitution of the state of California, adopted in 1879, provides, in article 11, § 12, that: "The legislature shall have no power to Impose taxes upon counties, cities, towns, or other public or IIlunicipal corporations, or upon the Inhabitants or property thereof, for county, city, town, or other municipal purposes, but may, by general laws, vest In the corporate authorities thereof the power to assess and collect taxes for such purposes."
Pursuant to this provision of the constitution, the legiSlature es· tablished a uniform system of county and township governments by the act approved March 14, 1883 (St. 1883, p. 299), and provided for the organization, incorporation, and government of municipal corporations by the act approved March 13, 1883 (St. 1883, p. 93). By these acts, the legislature, as required by the constitution, vested in the county and municipal corporations of the state full power and authority to assess and oollect taxes for oounty and municipal
'172
88,ll'EDERAL REPORTER.
,purposes. Notwithstanding, this distribution of the power of taxation for local purposes, the legislature, by the act of March 3, 1885, undertook to exercise thatpowet for the purpose of raising a revenue from foreign insurance companies to establish a firemen's relief fund, to be disbursed locally. The ,first section of the act provided that every agent of every fire insurance corporation or company not incorporated under the laws of the state should pay into the hands of the treasurer of the county, 01' city a.nd county, in the state, a sum equal to 1 per centum, upon the amount all premiums which, during the year, or part ofa year, ending on the last preceding first Monday of September, shall have been received by such agent or person, or any other person, or agent acting during such period for said corporation 01' company ,so engaged in said business, or which shall have been agreed to be paid such corporation or company, or his or their agents, for any insurance effected, or agreed to be effected, by such corporation or company, against loss or injury by fire upon property situate within the limits of said county, O'r city and county. The second section required that; the tax;provided for by the act, when paid orcollectE'd by the personpr officer entitled thereto, should constitute a fund, to beknown as the "Firemen's Relief Fund," of the county, or city.and county, in which the property insured, or agreed to be insured, is situated. The third section provided that such fund should be under the exclusive control of the fire commissioners, or other go,,:erning body (,}fthe fire department or fire departments of such county, or city and county, under such regulations as the board of supervisors thereof might prescribe. The other sections of the act provideq for the disposition of the fun4 thus raised, authorizing them to be disbursed by officers and to members of the fire departof the city, the ,city county, to whose treasurer they were reqUIred to be paHl. SL qiJ; 1885, p. 13. In 1886 the city and cpunty of San Francisco brought suit in the ,superior court of the city and county of San Francisco to recover from the Liverpool & London &, Globe Insurance Oompany the sum -of $441.36, alleged to be due under the provisions of this act. The demurred to the complaint, on the ground that the act was unconstitutional and void. The demurrer was overruled, and a judgment entered in favor' of the plaintiff. On to the supreme court of the state, the judgment was reversed, the court holding that the act attempted to impose a charge for the purpose of revenue, and was a tax imposed by the legislature of the state for municipal purposes, and therefore unconstltutional, and void, and that, as a cand.ition upon which corporations might be permitted to do business in the state, it was void, for the reason that the legislature could not exercise a power clearly' denied to it by the constitution of the state. SanFranciscov. Liverpool & L. & G. Ins. Co., 74 Cal. 113, 15 Pac. 380. This decision certainly disposes of the contention that the terms of, the act may be enforced as a condition, if not as a tax; and, as if. is a construction placed by the highest court of the . state upon its own constitution and statute, it is binding upon this court, and must be followed. F,of&yilh v. Hammond, 166 U. S. 506" 518, 17 Sup. at; 665. . , j,
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In Norton v. Shelby Co., 118 U. S. 425, 6 Sup. Ct. 1121, certain persons who undertook to act as county commissioners were adjudged to be usurpers as against others 'who were lawful officers; and it was held by the supreme court that, as the act of the legislature which created the board of commissioners was unconstitutional, there were no de facto officers, and therefore no de jure officers; and, an· swering the argument that a legislative act, though unconstitutional, might in terms create an office, and that nothing further than its apparent existence was necessary to give validity to the acts of the assumed incumbent, Mr. Justice Field, speaking for the court, said: "An unconstitutional act Is not a law. It confers no rights. It imposes no duties. It affords no protection. It creates no office. It is, in legal contemplation, as inoperative as though it had never been passed."
But, as the defendant does not now claim that he can enforce this law against the complainants, this feature of the case may be dismissed without further comment, except to say that the defendant's action, on January 29, 1898, in declaring that the complainants' bonds were insufficient and invalid, cannot be justified for the reasons given by him in his statement of January 30, 1898. He then declared that he would certainly refuse the bond of any company that was in ar· rears for the tax provided by the act of 1885. This declaration was, in. effect, a notice that the bonds of the 83 insurance companies, which he had adjudged insufficient and invalid on the 29th day of January, 1898, had been so adjudged by reason of such arrearag-e. We come now to the consideration of the defendant's action .in declaring the bonds in question insufficient and invalid, aside from the reasons given by him for such action on January 30, 1898. It is contended, on behalf of the defendant, that the complainants were not entitled to know his reasons; that he was exercising quasi judicial powers in passing upon the sufficiency and validity of their bonds; and that his action in that respect cannot be reviewed by the court in this proceeding. Section 59,5 of the Political Code of California provides that: "The insnrance commissioner must receive all bonds and secnrities ot per-
sons engaged In the transaction of Insurance business in this state, and file and safely keep the same In his office, or deposit them as provided in this article. He must examine and inspect the financial condition of all persons engaged, or who desire to engage, in the business of Insurance; Issue a certificate of authority to transact insurance business In this state to any persons in a solvent condition, who have fully compIled with the laws of this state, and are in no wise in arrears to the state, or to any county or city of the state, for fees, licenses, taxes, or penalties accrued upon business previ· <Jusly transacted in the state; determine the sufficiency and validity of all bonds and other securities required to be given by persons engaged, or to be engaged, In insurance business, and cause the same to be renewed In case .1f the insufficiency or invalidity thereof. · · ."
Section 623 of the same Code provides that: "The commissioner must require every company, association, or individual, not incorporated under the laws of this state, and proposing to transact in· surance business by agent or agents in this state, before commencing such business to file in his office a bond, to be signed by the person or firm, officer or agent, as principal, with two sureties, to be approved by the commissioner, in the penal sum of two thousand dollars for each insurance company, asso· dation, firm, or individual for whose account It Is proposed to colle.ct prcmi·
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88FEDlllRAL REPORTER.
uml;l of Insurance tn.tblsstatenbe condttlons of such bonds to be as folIows: !l)'.Ilpat persQn or agent or named therein, acting on behalf of tbf,!,.coDlpany, association, firm or.1¥dlvldu/l-I named therein, will Pl,ly to tbe treasn.ter of the county, or'cIty and county, in which tbe principal office of the agency Is located;' 'sucb sum per quarter, .quarterly In advaI1ce, tor a Hcense. ito .transilct an Insurance, business" ,00' . such other license· .as may be Imposed,.by law, So long aSlthe agency remains, In the hands of the person or firm, officer or naxned as principal In the bond. (2) Tbat the person or firm, officer or 'agent, wlll pay to tbe'stl;tte all' stamps or .other duties on the gross amonnts ltisured'by them, In the manner and at the time prescribed bylaw,lnclusive of renewals on existing policies. (3) That the person, firm, to all the provisions of the agent, or corporation named therein ,,,,ill laws made to goverI:l, ,them."
It is alleged in the bill of complaint that the bonds of the complainants, which the defendant adjudged to be insufficient and invalid, were each of them given pursuant to the provisions of this section of the Political Code; that no previous notice was given to the complainants of the alleged insufficiency or invalidity of said, bonds,or any of them, nor was any opportunity given to the complainants, or any of them,to renew sald bonds, or any of them; that the bonds were'in fact according to the form which had been provided for many years last past by successiVe insm;ahce commissioners of this' state, and were in form and substance such as had been accepted and approved by the defendant himselr since he had been insurance commissioner; A copy of the form 'of the bond furnished by each of the complainants is ,attached to the bills of complaint, from which it appellrsthattbe terms and cohditions of the bonds are strictly in accordance with the requirements of the statute.' It appears, further, that the' -defendant was appointed insurance commissioner March 3, 1897, and again on May 18, 1897. He qualified on May 19,1897, under the last appointment; and from the last date, if not before; he dischttrged the duties of insurance commissioner". From May 19, 1897, t6 JatlUiity 29, 1898, without any objection whatever, he treated complainants' bonds as valid and Elubsisting securing the'state against any' default on account of taxes, and entitling the complainants to transact insurance business in this state. But, assuming that after, investigati.on the defendant did. 'discover that the securities .o.f these bonds were not sufficient, or that the conditions of the bondl;1 were not in accordance with the statute, was it not his duty, as an officer of the state, charged with the administration of the laws regulating the business of insurance, to notify thecorriplainants of the defect, and require that the law should be observed? He was authorized to cause a renewal of insufficient and invalid bonds; but how could the complainants furnish sufficient and valid bondsby,renewal unless they were advised in what partieular they were defective? The practical difficulties arising out of a refusal to give such a notice is well illustrated by the proceedings which took place before the commissioner after .he made his order of January 29, 1898, de: claring the, bonds insufficient and invalid. He was asked by the complainants in what respect; the. bonds were insufficient and invalid, and he refused to reply other than to refer to the order he had made. He was asked ifthe'bonds were defective in form, or
LIVERPOOL & LO,NDClf'l & GLOBE INS. CO. V. CLUNIE.
175
he claimed the sureties were insolvent or insufficient in point of ability.. ,.Hl;! was also askec;l to the form would be satisfacof a bond, or,specify the termsQf. a bond· tory, but to all these inquiries he gave no further information than to refer to the terms of his order. It appears, however, that the defendant did, as insurance commissioner, on the 1st day of February, 1898, accept from, thp Continental Insurance Company of New York a bond in' the' identical form of the bonds adjudged to be insufficient and invalid on January 29, 1898; and on the 2d day of February, 1898, he accepted the American Surety Company of New York as a surety on the bond of the United States Fidelity & Guarantee Company of Baltimore. The complainants, upon the supposition that bonds in the form and with the surety of the bonds which the commissioner had accepted would also be accepted frbm them, prepared renewal bonds in such form and with such surety, and on February 3, 1898, deposited them with the defendallt, as insurance commissioner. On the 7th day of February, 1898, defendant made an order adjudging and determining that each and everyone of these renewal bonds and insufficient, and declined to approve or ,file the same. The order is preceded with a written opinion, in which the commissioner states his objections to these renewal bonds. These objections are, in substance, as follows: (1) It is objected that each of the companies executing the bonds is a member of the organization or association known as the "Board of Underwriters of the Pacific"; that the purpose and effect of this association is to create a monopoly of the fire insurance business in this state, which, in the opinion of the commisl3ioner, is unlawful, and against public policy and the interests of the state; and that no foreign corporation can come into the state, and enter into such an agreement, become a member of such association, and lawfully continue to transact business in this state. (2) It is objected, against the bonds of the 34 foreign insurance companies, that the whole of the capital stock of such companies had not been paid up. Section 15 of article 12 of the constitution of this state provides that: "Ko corporation organized outside the limits of this state shall be allowed to transact business within this state on more favorable conditions than are prescribed by law to similar, corporations organized under the laws of this state."
And section 424 of the Civil COde of the state provides that: "The entire capital stock of every fire or marine insurance corporation must be paid up in cash within twelve months from the filing of the articles of Incorporation, and no polley of insurance must be issued or risk taken until twenty-five per cent. of the whole capital stock is paid up."
Th'e commissioner under these constitutional and statutory' that no foreign corporation organized for more thaI) one year is entitled to transact business in this state unless its en tire subscribed has been paid up. '" (3) It i& objected"t4at the consent of the stoclrbolders of the for·
176
eign-(lorporations had not been obtained for their individual a.nd personal liability for the debts and liabilities of the corporations, as· provided in section 322 of the Civil OOde of the state. That sectionprovides: "Each stockholder of a corporation Is Individually and personally liable fol' such proportion of Its debts and llab11lties as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation, and for a llke proportion only of each debt or claim against the corporation. · · · The llablIity of each stockholder of a corporation formed· under the laws of any other state or territory of the United States, or of any foreign country, and doing business within this state, shall be tIle same as the llahillty of a stockholder of a corporation created under the constitution and laws of this state."
(4) It is objected that complainants do not maintain an office or place in this state for the transaction of their business, where transfers of stock can be made, and in which shall be kept (for inspection by every person having an interest therein, and legislative committees), books in which shall be recorded the amount of capital stock subscribed, and by whom, the names of the owners of the stock, and the amounts owned by them respectively, the amounts of stock paid in, and by whom, the transfers of stock, the amount of their assets and liabilities, and the names and places of their officers, as provided in section 14, art. 12, of the constitution of the state. That section provides: "Every corporation other than rellglous, educational, or benevolent, organIzed or doing business In this state, shall have and maintain an office or place In this state for the transaction of Its business, where transfers of stock shall be made, and In which shall be kept, for inspection by every person having an interest therein, and legislative committees, books in which shall be recorded the amount of capital stock subscribed, and by whom; the names of the owners of its stock, and the amounts owned by them respectively; the amount of stock paid In, and by whom; the transfers of stock; the amount of its assets and llabilltles, and the names and place of residence of Its officers."
(5) It is alleged: That in certain states of the Union the certificates of authority or license to transact insurance business in such states are of annual duration. That section 622 of the Political Code of California provides that: "Wilen by the laws of any other state or country, any taxes, flnes, penalties, llcenses, fees, deposits of money, or of securities, or other obligations, or prohibitions, are Imposed on insurance companies of this state, doing business In such other state or country, or upon their agents therein, In excess of such taxes, fines, penalties, licenses, fees, deposits of securities, or other obligations or prohibitions, Imposed upon insurance companies of such other state or country, so long as such laws continue in force, the same obllgatlonsand prohibitions of whatsoever kind must be Imposed upon Insurance companies of such other state orcou;ntry doing business in this. state. · · ."
-That the effect of this retaliatory law upon the Insurance companies, from,sucb states as provide for an annual certificate, is to limit thecertiflcate 'of authority issued to them under the law of the state toone year. It is accQrdingly objected that all such companies who have not procured renewed certificates within one year are transacting business in this state cont\"ary'tolaw. , The commissioner concludes his opinion with the statement that:
LIVERPOOL '" LONDON '" GLOBE INS. CO. V. CLUNIE.
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"There are many other objections, founded upon the laws of this state, which I believe to be sufficient to justify me In withholding approval from these bonds, and In denying the applications to file same. I have carefully examined the said bonds, and the manner of their execution, and, with the exception of those furnished by the Home of New York and Phcenlx of Hart· ford, I believe them to be insufficient in form and substance; and as to the two excepted, while not open to all the objections to which the others are subject, I am not satisfied as to their execution."
The commissioner thereupon adjudged and determined that each and every of said bonds was "invalid and We have in these objections the opinion of the commissioner concerning the renewal bonds, but he says nothing whatever about the original bonds, the sufficiency and validity of which are the essential questions involved in this controversy. It was assumed, however, upon the argument, that the objections of the commissioner to the renewal bonds were also applicable to the original bonds, and they will be so considered. With respect to the first objection, it is sufficient to repeat what has been said before,-that the question raised is immaterial. It. is a fact, however, that the question whether the Board of Fire Underwriters of the Pacific is an unlawful association or its purpose illegal was before this court in Continental Ins. Co. v. Board of Fire Underwriters of the Pacific, 67 Fed. 310. The subject was there discussed by Judge McKenna (now Mr. Justice McKenna of the supreme court) with great care, and the authorities relating to unlawful combinations elaborately reviewed. The learned judge arrived at the conclusion that the association was lawful and its purpose legal. With respect to the other objections, it will not be necessary in these proceedings to ascertain to what extent the complainants in the trnnsaction of insurance business in this state are subject to the constitutional and statutory provisions upon which the objections are based. The scope of the commissioner's power to declare bonds insufficient and invalid must be determined on other grounds. It will be observed that no objection is made by the defendant to the sufficiency of the sureties on any of these bonds, and, with the exception of the general objection that the commissioner believes the bonds "to be insufficient in form and SUbstance," no objection is madp. to their form. He points out no defect in the terms of any of thp. bonds, and does not claim that any of the conditions required by the statute have been omitted therefrom. The objections he has made, and which appear to have been prepared with some degree of care, are directed to matters that in no way affected the sufficiency or validity of the bonds under which the complainants were transacting insurance business in this state on the 29th day of January, 189B. The claim made on behalf of the defendant, that the statute clothE'S the insurance commissioner with a discretionary power in determining the sufficiency and validity of the bonds furnished by insure ance companies, and that, in the exercise of this discretion, his acts cannot be reviewed by the courts, is not controverted by the complainants. They admit tbat if the solvency of the sureties to these 88F.-12
sa FEDERAL
REPORTER
bods;was disputed,and,the;commissioner:shouldin good faith instirute'ah' ifil:'I1Uiry and, upon the evidence, should adjtidge tbl1f the, ,hoIldswere'Iiot in' point of financial abili(y tp,secure the, state in, the full prinCiJ,ili1 sum of the pond" the judgmeJllt of the commissioner would be final, and not subject to review by the courts:' It maybe admitted, further, that, if the conditions of these bonds were such that tM'v did not conform to the reqThirements of the statute, judgment, of the commissioner acting in good faith upon the question of their validity would be final, and not sublteet to review by ,the ,courts. .But here we have the question whether the commissioner has the power to adjudge that the bonds of the insurance companies, are insufficient and invalid for other and different reasons,and ,bet:ause, in his opinion, the companies have asSociated theIIUlelv.es together in an unla.wful combination, or have not complied with some law ,of the state. These bonds contain the condition that the insurance company will "conform to all the provisions ,of the revenue and other laws' made to govern them." Is itpossib1ethat upon the breach of this condition, and for that ['eason, the commissioner has the power to declare these bonds invalid? }f,anifestly not. The validity of the bond is the security which the state has Jor the enforcement of the law. But it may be said that the action of the commissioner had reference to the future. and not to the past;.that,L:bavibg discovered that the insurance companies were not complying with the law, he proposed to terminate their disobedience by canceling their bonds, and, by refusing to approve and file renewa I bonds, compel them to leave the state. This is, in effect, exercising the power of revoking their certificates of authority to transact business in this state.' If the commissioner has this power under sueh conditions, it mustbeoonnd in the law in plain and explicit terms. It ought ncit to be ·matter of inference or the subject of mere conjectnre. It should be positive and and in accordance with the manifest intent and pllrpose of the, legislature. The commissioner has the power to revoke certificates of authority under which insurance com· to transact business in this state. This power is clearly anddi.stinctly given in the statute, but the conditions under which it may be exercised are also clearly stated. By section 595 of the' Political Code of California it is proVided that the commissioner may revoke the certificate of any, ,foreign corporation or company authorizing it to do business in this state whenever ''such corporation or company shall transfer or cause to be transferred an action to the United States circuit conrt." By,section 600 of Code it is provided,that,"whenevE!r the commissioner ascert3iins that any personeng3iged,in,the insurance, business is insolvent within the meaning of this chapter, he must retoke the certificate gratlted, and send by mail,tosuch person, addressed to him at his principal place of businesll, or deliver to him' personally, notice of such revocation," etc. These are the ,'only conditions under: which the commissiol1eris authorized ,bJ',:the laws of the state to revoke a certificate, and, by a welhknown'rule of interpretation, the authbrity cannot be extended to' other .conditions or circumstances I not wel1tioned in the statute. Suth. St. Const. Law, § 392.
UVERPOOL & LONDON & GLOBE INS. CO. V. CLUNIE.
179
We find, then, that, while the power'of the commissioner in dealing with ;the bonds of theinsnrance companies and with ·the certificate of authority granted them to transact business in the state is clearly defined, it is, nevertheless, limited in its scope, and does not include the authority to declarecomplaillants' bonds insufficient and invalid for anv of the reasons disclosed in the defendalWs affidavit. How, then, can it be said that he was acting within his jurisdiction in the exercise of·a legal discretion? It is true that in section 595 of the Political Code, after enumerating certain duties of the commissioner, he is required to "perform all other duties imposed upon him bJ' the la W8 l'egnlatillg the business of insurance in this lstate, and enforce the execution of such laws." But this provision certainly does not enlarge his jurisdiction, or confer upon him any power or ·authority to perform a duty not specified, or to execute a purpose not sanctioned by the law. U. S. v. Doherty, 27 Fed. 730, 733; U. S. v. Kirby, 7 Wall. 482, 486. "Notwithstanding the words of tht> commission give authority to the commissioners to do according to their discretion, yet their proceedings ought to be limited and bound with the rule of reason and law." Rooke's Case, 5 Coke, 99. The duty the commissioner is required to perform in enforcing the execution of the laws against domestic insurance companies is clearly pointed out in section 601 of the Political Code, where it is provided: "In case any person, upon the requisition of the commissioner, falls to make up the deficiency of the capital in accordance with the requirements of this chapter, or to comply in all respects. with the laws of this state, the commissioner' must communicate the fact to the attorney-general, who must. within twenty days after receiving such communication, commence an action in the nal\1e of the people of this state in the superior court of the county where th(l person in question is located or has his principal office, against such person, and lIpply {or· an order requiring cause to be shown why the business should not be closed," etc.
.If the oD:ly purpose of this section is to dose up the business of the delinquent corporatioq,and not to distribute its effects to the stockholders and creditors, ·as determined in State Inv. & Ins. Co. v. Superior Court of City and County of San Francisco, 101 Cal. 135, 146, 35 Pac. 549,. it not perceived why the section is not applicable to all insurance companies alike, whether foreign or domestic. If a foreign corporation fails to comply with the laws of the state, is there any reason why that fact should not be determined by the court upon the suit of the attorney general, as in the case of a domestic corporation, when the remedy for the delinquency is to compel the corporation to cease doing business in the state? There is certainly no reason in the general administration of the law, and none has been disclosed in any of the facts of the present case. 'l'he conclusion to be drawn from these various provisions of the statute is that the duties of the insurance commissioner have been carefully prescribed and regulated. If a foreign insurance corporation removes ari action from the state court to the United States court, or becomes insolvent, the commissioner is required to revoke its ('crtifi('ate of authority to transact business in the state. If the bond of s\1eh a corporation is discovered to be invalid by reason of the ('onditions being defective in form or substance, or if it be found
88
FEDlllRAL REPORTlllR.
that the sureties are insufficient, in a financial point of new, to secure the state the Pe,llal sum of the bond, then it is, the duty of the commissioner to cause the bond to be renewed. .If the commissioner. discovers that such a corporation had failed to comply with the laws of the state in any respect, and no specific method of procedure has been prescribed by the statute, then the commissioner is required to communicate the fact to the attorney general of the state, who :may proceed on the bond, or take such other action as may be appropriate under the circumstances. What can be more clear than the fact that it is not necessary to enlarge the commis. sioner's powers in one direction to secure an enforcement of the law in another? In Com. v. City of Philadelphia (pa. Sup.) 35 Atl. 195, a contract had been made by the board of education of the city of Philadelphia for a matter within their department, and they had issued a warrant for payment of the claim thereunder, and an alternative writ of mandamus had. issued to compel the city comptroller to sign a warrant for the payment of the claim. The comptroller answered that it did not appear that the contract was made in accordance with an act governing snehcontracts; that the binding of the books, which were the subject of the contract, was so unsuitable as to render them unserviceable for public use; and that the relator allowing a very large commission to the agent who secured the contract. The judgment of the court of common pleas of Philadelphia was in favor of the defendants. The supreme court, in passing upon the sufficiency of this answer on appeal, said: . "The answer appears to be based on a very exaggerated and erroneous idea of the controller's powers and authority, and the claim that he is 'not subject to the ·order or direction of the court' Is not to be tolerated. The duties of the controller, as was held in Com. v. George, 148 Pa. St. 463, 24 AU. 59, 61, are partly ministerial and partly discretionary; and, while the courts will not review his discretion, exercised In a proper case, yet he is not above the law, and his discretion Is not arbitrary, but legal. When, therefore, he is called upon by the courts, the facts must be made to appear sufficiently to show that they bring the cas!! within his discretion, and that it was exercised In obedience to law. On this subject the courts are .the final authority, and their jurisdiction cliimot be ousted by simply putting forth the assertion of discretionary ·J:lower, without showing that the matter was properly within such discretion. * * * The only contest comes from the controller, and his groundsot objection, set out at length in his aq.swer, show that none of them were founded on matters within his discretion. Had any of them been valid, the court would not review his decision in regard to the facts; but when, admitting all the facts, none of the reasons are sufficient, the courts, . and not the official, must determine the rights 01 the parties. This is the rule even in cases of discretion vested ill strictly judicial tribunals (In re Johnson's License, 156 Pa. St. 322, 26 AU. 1066; Gross' License, 161 Pa. St. 344, 29 Atl. 25; Gemas' LiceIlse, 169 Pa. St. 43,32 AU. 88); and a fortiori must it be the rule' where the discretion, though ample ana eXclusive, is reposed in a tribunal or an· official who is only quasi jUdicial within prescribed limits."
The jpdgment of the lower cou.rt W:l;lS accopdingly reversed, and mandamus directed to be issued. . Applying the doctrine ofthis case to the case at bar, and it appears to dispose of all the objections which the defendant has raised to the present The duty of the commissioner is partly minis-
MOSS V. DOWMAN.
181
terial and partly discretionary. With respect to the performance of those duties in which he exercises his discretion in good faith, the courts will not review his judgment or restrain his action; but the discretion he may thus exercise must be a legal discretion, and within the limitations of his authority. He cannot act arbitrarily or capriciously, or in disregard of the established rules of law; and, when he is called upon by the court to answer the charge that his conduct is illegal, oppressive, and injurious, he should be able to present sucb facts as will clearly show that he is acting under authority and within the jurisdiction of his office. It is true, the defendant alleges in his affidavit that in rejecting the bonds offered and tendered by the complainants, and in holding them to be insufficient and invalid, he did so after an examination and investigation into the matter, and in the exercise of the discretion conferred upon him by law; but, from other facts alleged by the complainants, and not denied by the defendant, this allegation appears to be in the nature of an opinion which the defendant himself formed as to the character of his own acts in the premises. That there ha"e been evils in the administration of the insurance law may be admitted; that the defendant believes it to be his duty to mal{e the office of commissioner efficient and of substantial benefit to the public may also be conceded; but it does not follow that he may adopt any course or pursue any method that will accomplish the purpose he has in view. The law furnishes the guide and regulates the performance of official conduct, and will be construed as conferring those powers only which are expressly imposed or necessarily implied. Mechem, Pub. Off. § 511. A tempo· rary injunction will issue, in accordance with this opinion.
MOSS v. DOWMAN.
(Circuit Court of Appeals, Eighth Circuit. No. 1,041.
June 27, 1898.)
1.
PUBr.IC LANDS-HoMESTEADS-REI,INQUISHMENT-BoNA FIDE SETTLERS.
When, on the relinquishment of a homestead entry, the land Is, and for some time past has been, In the possession of another, who Is a bona fide settler, his rights as such Immediately attach to tbe exclusion of a third person, who procures the relinquishment to be made, and wbo simultaneously with the relinquishment tenders an application for entry of the lands, and Immediately enters thereon and makes improvements. It Is only when It Is made plain that the officers of the land department bave, by a mistake of law, deprived a party of land to which he is rigbtfUlly entitled, that a court of equity Is justilled In setting aside tbe action of the department.
2.
SAME-RULINGS OF LAND DEPARTMENT-EQUITY .JURISDICTION.
: 9f Minnesota.
Appeal from the Circuit Court of the United States for the District .
, Tbe bill In this case was filed In tbe circuit court for the district of Minnesota, for the purpose of determining the ownership of 160 acres of land ,sItu, ated in that state, as between the complainant and defendant, It appearlIlg that the legal title of the land is vested in the defendant, Richard Dow:miiD, ,under a patent oftbe United States duly issued to him under date of.·!March