Penhall v. Minnesota State Medical Ass'n , 126 Minn. 323 ( 1914 )

Philip E. Brown, J.

Appeal by plaintiff from a judgment rendered in defendant’s favor after trial to the court alone, in an action to recover moneys expended by the former for counsel fees, etc., in defending a malpractice suit, the defense of which the former claimed the latter was obligated under its laws to conduct.

The findings here material are unchallenged and as follows: Plaintiff, a physician, was a member of defendant corporation at all times mentioned. Its purpose was, among other things, “to guard and foster the material interests of its members and to protect them against imposition.” On April 1, 1910, it adopted by-laws, the pertinent portions whereof are:

“CHAPTER XI — Medical defense.

“Section 1. * * * members * * * shall be entitled, on conditions hereinafter specified, to receive, without personal expense therefor, legal advice and court service of an attorney or attorneys-,at-law in the employ of the association, witness fees for the purposes ■of conducting their defense in any court in this state, when they are accused of malpractice, * * * .

“Section 2. It shall be the duty of the council, severally or collectively, to investigate all claims of malpractice against members, to adjust such claims in accordance with equity when possible, and, if in tbeir judgment an adjustment is impossible, or tbe claim is unjust, or tbe damage sought is excessive, to tender such help, aid, and counsel as they may see fit. They shall be empowered to contract with a member of the bar of Minnesota as legal.counsel of this association.

“Section 3. The council shall, make an annual rpport to the house of delegates, at the annual meeting for the year previous ending March 31st. This report shall contain an enumeration of all suits or threatened suits for malpractice against members of the * * * association, which have been properly presented to them for action.

“Section 4. The legal services herein provided for shall be granted only on the following conditions: First. Any * * * member desiring to apply for malpractice defense hereby provided, shall immediately upon receipt thereof send to the secretary of the * * * association, any letter, process of court, or other evidence of threatened litigation in connection with such malpractice case. Second. It shall he the duty of the secretary to * * * forthwith send to such council the papers received from the applicant for defense and such secretary shall forthwith return to the applicant * * * a formal application for defense, containing authority for the said association through its attorney to defend the action and granting to the association and its attorney sole power to conduct the defense thereof, and agreeing not to compromise or settle said claim for damages for said alleged malpractice without the consent of the * * * association or its attorney. The said applicant shall furnish and return to the secretary with his application duly executed, a full, accurate, and complete history of his treatment of the case out of which the alleged malpractice arose, giving dates, names of witnesses, nurses, and other attendants, all of which information shall, upon its receipt by him, be forwarded by the secretary * * * to the council of the association. * * * Fifth. The * * * association will assume the defense in a suit for malpractice against a member only when the cause for the alleged malpractice occurred subsequent to the date on which the member joined the association. Sixth. This chapter shall be in force * * 'x' after April 1st, 1910 -x- # -x- »

On October 15, 1910, an action to recover $25,000 damages for malpractice, alleged to have occurred August 5, 1909, was commenced against plaintiff, who thereafter immediately presented the summons and complaint served upon him therein to defendant’s secretary and demanded that it proceed in accordance with its by-laws and assume the defense. This officer declined to take the papers, declaring that, as the alleged malpractice occurred prior to the adoption of the bylaws quoted, it was not within them, and the association was not thereunder required to defend the action. He also then informed plaintiff that he could see defendant’s legal adviser, but on plaintiff’s application that official declined to take the defense as attorney for the association. Later, after dismissal of the malpractice action, another based on the same claim and for damages in the same amount was commenced, in defense whereof this plaintiff incurred the expenses here sued for. Defendant, however, had no notice of the second action until after its determination.

1. Defendant’s officers were mistaken in assuming that the by-laws did not cover claims arising prior to their adoption, for the only exception therein relates to causes of action antedating membership in the association, and none other can be implied.

2. Neither can the by-laws be construed as not imposing any duty or obligation on defendant’s part to defend suits against members. The purposes of the corporation and the tenor of the by-laws, taken as a whole, lead to the opposite conclusion, otherwise the latter would be practically ineffective of beneficial results to members. Though section 2, read alone, gives color to defendant’s position, the other sections must be considered therewith, and these unequivocally entitle members to action by the secretary on presentation of the claim, and thereafter to investigation and, if possible, adjustment by the association, and also, in a proper case and, as expressed in the bylaws, “on conditions” thereinafter specified, “to receive without personal expense therefor,” the service and expenses stated. Going down- through the by-laws, we find that the conditions referred to merely 'require presentation of the papers in the litigation to the secretary, and after performance of certain ministerial duties on his part, the obligation devolves upon defendant’s council to investigate the claim made against the member, to adjust it if possible, and, otherwise, to proceed further if it is unjust or the damages demanded are excessive. Kelly v. Ancient Order H. Life Ins. Fund, 113 Minn. 355, 129 N. W. 846. We find no warrant for the assumption that section 2 authorizes the council to dispose of the rights conferred upon mere caprice or arbitrary discretion.

3. The by-laws required plaintiff to deal with the secretary, and he was not required to apply to the council. Nor was it necessary for him to give notice of the second action after defendant’s refusal to consider his demand with reference to the first. Butler Brothers v. American Fidelity Co. 120 Minn. 155, 163, 139 N. W. 355, 44 L.R.A.(N.S.) 609.

4. It is apparent, then, that plaintiff complied with all precedent conditions, and defendant’s liability for his expenditures would seem to follow from its failure to investigate and, if possible, to adjust the claim against him. It is now urged, however, that he should have gone further and established on the trial that the claim was of such character that, had defendant investigated the same, it would have been bound to furnish the assistance provided for by its laws. This contention cannot be sustained. Defendant’s refusal to act was based solely on grounds not involving the merits of the claim against plaintiff. Furthermore, no such question as that now raised appears to have been presented to or passed upon by the trial court, the parties evidently assuming it to be irrelevant to such extent that it was suggested only inferentially in defendant’s original brief in this court, and on the oral argument plaintiff’s counsel stated, without contradiction, that plaintiff prevailed in the litigation. Familiar principles preclude defendant from shifting its position from grounds of absolute denial of liability in any event, to one of essentially remedial character, after plaintiff has conformed his case to the former and the cause has thus far been litigated solely thereon.

But these considerations aside, and assuming a case wherein after due investigation the judgment of the council is that adjustment is impossible, the claim is just, and the damages sought are not excessive, so that the association is relieved of obligation to assist the member further, whose duty is it to plead and prove such facts ? Otherwise stated the question is whether section 2 superimposes a condition precedent upon the obligation created by section 1, or annexes-thereto a condition subsequent upon occurrence of which such obligation ceases ? If the former the burden is on the member, if the latter on the association. Root v. Childs, 68 Minn. 142, 146, 70 N. W. 1087. In our opinion the situation presents a condition subsequent ■ for the council must investigate and, if possible, adjust in all cases, and may refuse financial aid only when “in their judgment” adjustment is impossible, the claim is just, and the damages are not excessive. Furthermore, the conditions under which the association owes no duty must necessarily be within its own knowledge rather than that of the member. Therefore, in litigation wherein they are relied on as defense, they should come from it. Defenses need not be negatived. 2 Dunnell, Minn. Dig. § 7535. The correctness of this proposition is particularly apparent in the present case, where neither investigation nor attempt to adjust was made. Plaintiff could not allege or prove what the council’s judgment after investigation would have been, nor the result of an attempt to adjust. At most the only pertinent issue in this regard would have been whether defendant’s performance of its duty would have proved futile to plaintiff, and the former had the burden thereon in both pleading and proof.

Judgment reversed.