Capitol Mutual Benefit Assn. v. State , 119 N.J.L. 193 ( 1937 )

For antecedent litigation concerning chapter 187, Pamph. L. 1936, p. 445 ("An act concerning mutual benefit associations"), reference to the case of Equitable Beneficial Association v.Withers, 122 N.J. Eq. 134; 192 Atl. Rep. 511, will disclose that prosecutor here, and other similar associations affected, instituted proceedings in Chancery under our "Act concerning declaratory judgments and decrees" (chapter 140, Pamph. L. 1924, p. 312), to test the validity of the act of 1936,supra, and to enjoin Withers, state commissioner of banking and insurance, from taking any proceedings under the act against the petitioners and complainants. The vice-chancellor, on preliminary hearing, denied relief. Then the attorney-general, by reason of the decision of our Court of Errors and Appeals in Moresh v.O'Regan, 122 N.J. Eq. 388; 192 Atl. Rep. 831 (see194 Id. 156), (1937) moved to dismiss the proceedings on the ground that Chancery was without jurisdiction to grant the relief sought; the motion apparently was granted.

Following that disposition of the litigation, the State of New Jersey, on complaint of the commissioner of banking and insurance, instituted the present suit against prosecutor in the District Court of the city of Trenton for the recovery of the penalty of $500 as provided in section 17 of the act of 1936, supra, by reason of prosecutor's neglect, failure or refusal to comply with the requirements of the act. In its specifications of defense, prosecutor set down nine (9) reasons in support of its claim that the act is unconstitutional. It will serve no useful purpose to re-state these reasons. Not all are argued. Those that are argued here may be embraced in the contention that section 18 of the act, in the words of the prosecutor, "creates an arbitrary and unjustifiable classification;" and, therefore, the whole act, because of section 20 thereof (which provides that if section 18 shall be held invalid in whole or in part the entire act shall be "null and void and of no further force and effect") is in violation of both the New Jersey constitution (article 4, section 7, paragraph 11) and the United States constitution (section 1 of thefourteenth amendment).

It was stipulated in the District Court by counsel for the respective parties, (1) that prosecutor was a mutual benefit association as defined in section 1 of the act of 1936, supra, which act became effective January 2d 1937; (2) that under the provisions of the act, prosecutor is required to comply with the act "before undertaking to provide any specified benefits in the event of disablement by accident or sickness to any member thereof, or to any other person or contract with any of its members to pay death benefits;" (3) that prosecutor had not complied with the provisions of the act; (4) "that the nature of the business conducted by (prosecutor) in so far as provisions for sick and death benefits to its members, is similar to that provided by the exempted class mentioned in section 18 of chapter 187, laws of 1936." In addition to this stipulation prosecutor offered in evidence copies of the certificate of incorporation of several associations which were exempted under section 18 of the act of 1936, supra, in support of the claim that the provisions of that section "were not based upon any legal justification and were discriminatory in character." Prosecutor further offered to prove that certain societies exempted under section 18 of the act failed to pay benefits as provided in their constitutions and by-laws; that associations of designated forms and exempted from the act had no unity of bond between members of such societies; and offered to prove evidence of a number of criminal complaints made by employes of the Radio Corporation of America, the latter being an employer association within section 18 of the act; that certain of the societies exempted had publicly advertised for members, and that certain of the exempted societies had carried on a campaign of solicitation for members. The trial judge, on objection, overruled these offers and allowed exceptions. Judgment was entered on October 2d 1937, against prosecutor in favor of plaintiff in the sum of $500. The Supreme Court (Mr. Justice Bodine) allowed a writ of certiorari on October 14th, 1937. In light of section 3 of the act of 1936,supra (making January 1st, 1938, the deadline for qualification under the act) the understanding upon the allowance of the writ was that the cause would be submitted on briefs as of the October term (1937).

As already stated prosecutor's attack is directed chiefly at section 18 of the act of 1936, supra. That section lists the associations which are exempted from the provisions of the act. For a detailed analysis thereof see Equitable BeneficialAssociation v. Withers, supra (at pp. 136, 137). The determinative question, therefore, is whether the provisions of chapter 187, Pamph. L. 1936, p. 445, arbitrarily discriminates between prosecutor and other associations carrying on or doing a similar business. We do not think so.

The applicable test is well settled.

"It is within the competency of the legislature to classify objects of legislation; and in the exercise of this power it possesses a large measure of discretion. But the classification, to have the virtue of constitutional generality, must rest upon distinctions that are substantial and not merely illusory. The test is whether the statutory class has a logical and reasonable basis, free from artificiality and arbitrariness, embracing all and omitting none naturally falling into that category. Is it legislation of such a character as is equally appropriate to all forming the statutory class, and is that class embracive of all in like situation and circumstances, and therefore natural members of the class so created? If, viewed in the light of the legislative design, the necessity of propriety of the classification reasonably appears, it is not within the constitutional interdict." Raymond v. Township of Teaneck,118 N.J.L. 109 (at p. 111), and cases there cited;191 Atl. Rep. 480. (Compare Gulf C. S.F.R. Co. v. Ellis,165 U.S. 150, 155; 41 L.Ed. 666, 668; Smith v. Cahoon,283 U.S. 553, 566, 567; 75 L.Ed. 1264, 1274.)

That the legislature has the power to supervise and regulate mutual benefit associations, and that it also has the power to make classifications in the exercise of its power to supervise and regulate such associations so long as the classifications are not arbitrary but are in fact based on a real and substantial difference having a real relation to the subject of the particular legislation, is not subject to challenge; here, it is in fact conceded.

Prosecutor, however, contends in substance, that the act of 1936, supra, must fall because the classification is not reasonable; because it is clearly an attempt to make "a distinction between corporations identically alike in organization, capital and all other powers and privileges conferred by law" (Cf. Cotting v. Godard, 183 U.S. 79, 108,109; 46 L.Ed. 92, 108); and because it is special legislation. These contentions are without merit both as to the law and the facts.

First: As to the law. In the case of Sproles v. Binford,286 U.S. 374, 396; 76 L.Ed. 1167, 1183, it was held:

"* * * There is no constitutional requirement that regulation must reach every class to which it might be applied — that the legislature must regulate all or none. Silver v. Silver,280 U.S. 117, 123; 74 L.Ed. 221, 225; 65 A.L.R. 939;50 S.Ct. 57. The state is not bound to cover the whole field of possible abuses. Patsone v. Pennsylvania, 232 U.S. 138, 144;58 L.Ed. 539, 543; 34 S.Ct. 281. The question is whether the classification adopted lacks a rational basis. Lindsley v.Natural Carbonic Gas Co., 220 U.S. 61, 78; 55 L.Ed. 369,377; 31 S.Ct. 337; Ann. Cas. 1912C, 160; Keokee Consol. CokeCo. v. Taylor, 234 U.S. 224, 227; 58 L.Ed. 1288, 1289;34 S.Ct. 856; Miller v. Wilson, 236 U.S. 373, 384;59 L.Ed. 628, 632; L.R.A. 1915F, 829; 35 S.Ct. 342; Carley Hamilton v. Snook, 281 U.S. 66; 74 L.Ed. 704;68 A.L.R. 194; 50 S.Ct. 204, supra; Smith v. Cahoon, 283 U.S. 553;75 L.Ed. 1264; 51 S.Ct. 582, supra."

Does membership in the prosecutor association, under the circumstances exhibited, form a sufficient basis for a separate classification? The legislature, in the exercise of its broad and sound discretion, thought so. Now what are some of the classifications that our courts have upheld?

In New York, ex rel. Bryant v. Zimmerman, 278 U.S. 63;73 L.Ed. 84, it was held that members of the Ku Klux Klan are not deprived of the equal protection of the laws by being required to file their constitution, by-laws, rules, regulations, and oath of membership, and roster of membership, when members of labor unions, Masonic fraternities, Odd Fellows, Grand Army of the Republic, and Knights of Columbus are not required so to do. And as further pointed out (at p. 190, 73 L.Ed.; p. 74 of 278 U.S.):

"* * * classifications have been sustained which are based upon differences between fire insurance and other kinds of insurance (Orient Insurance Co. v. Daggs, 172 U.S. 557, 562;43 L.Ed. 552, 554; 19 Sup. Ct. Rep. 281); between railroads and other corporations (Tullis v. Lake Erie and Western RailroadCo., 175 U.S. 348, 351; 44 L.Ed. 192, 194; 20 Sup. Ct.Rep. 136), between barber shop employment and other kinds of labor (Petit v. Minnesota, 177 U.S. 164,168; 44 L.Ed. 716, 719; 20 Sup. Ct. Rep. 666); between ``immigrant agents' engaged in hiring laborers to be employed beyond the limits of a state and persons engaged in the business of hiring for labor within the state (Williams v. Fears,179 U.S. 270, 275; 45 L.Ed. 186, 189; 21 Sup. Ct. Rep. 128); between sugar refiners who produce the sugar and those who purchase it (American Sugar Ref. Co. v. Louisiana, supra)."

Second: As to the facts. The objectives sought to be reached are clearly stated in the challenged act. Roughly stated, the legislation seeks to subject an association like that of prosecutor to the supervision of the state department of banking and insurance; it established minimum reserve requirements; it provides for the inclusion of standard clauses in the certificates issued to members; it prohibits the transaction of business without authority; and otherwise provides, regulates and controls the business of mutual benefit associations to the end of placing that type of business on a reasonable, safe and sound basis. In other words, the object of the legislation is for the protection of those who make contributions to a fund in order to be secured, to some extent, in the event of illness, disability or death. This is the true, and perhaps the only tie which a member of prosecutor's association has with the association. On the other hand, however, membership in most, if not all, in the exempt class provides, in addition to financial protection in some of them, activities altogether foreign to membership in prosecutor's association. These activities create invaluable and oft-times lasting ties of true brotherhood from which flow kindness, charity, mutual understanding and helpfulness. These activities further tend to emphasize good citizenship, loyalty and patriotism for our country, its institutions and its ideals. Associations whose members reap the benefits of such objectives, in addition to some financial protection, will merit exemption as a class.

We are firmly of the opinion that the classification is not arbitrary; that it is based on a real and substantial difference and that difference has a real relation to the subject of the challenged legislation.

We have carefully considered prosecutor's contention that the act is violative of the due process clause of the federal constitution because it is confiscatory and find that contention, and all other points raised and argued, to be without merit.

The writ of certiorari is accordingly dismissed, and the judgment of the District Court is affirmed, with costs.