Stewart v. American Life Ins.

LEWIS, Circuit Judge.

We reversed the decrees entered in favor of appellee in the causes above entitled for the reasons stated in our opinion in 80 F.(2d) 600. Thereupon appellee applied for rehearings. Other insurance companies asked to intervene in that application as friends of the court, and permission was granted. Through their counsel they, as well as counsel for appellee, have filed briefs, and claimed errors in our reversal have been elaborately argued. The whole controversy is whether appellee had a plain, adequate, and complete remedy at law and was thereby precluded from proceeding in equity, as the trial judge permitted it to do.

The point argued arose out of these facts and circumstances: On February 23, 1932, appellee, a Colorado corporation, issued to Reese Smith Stewart, a resident and citizen of Wichita, Kansas, two policies of life insurance. In one of them his wife, Ora Inez Stewart, and in the other his son, Reese Smith Stewart, Jr., was named as beneficiary. The insured paid the first annual premiums, but died on May 31, 1932, before any additional premium was due. Each policy contained this provision:

“This policy shall be incontestable, except for nonpayment of the premium, after one year from its date of issue if the Insured be then living, otherwise after two years'from its date of issue, * * *.”

On September 3,. 1932, which was six months and twenty days after the policies were issued, appellee filed a bill in equity against each beneficiary. It is to be observed that approximately a year and a half remained after the bills were exhibited before the two years, during which appellee had a right to contest the validity of the policies, would expire. The only reason set forth in the bill for filing it at the time it was filed is stated thus:

“That by the foregoing provisions said policy is incontestable after two years from its date of issue; that by reason of said provision said policy of insurance must be contested by this complainant on or before the expiration of the said period of con-testability, notwithstanding the intervening death of the insured; that the defendant herein, the beneficiary under said policy, may delay the commencement of an action at law for the enforcement and collection of said policy until after the expiration of said contestable period or, if action is instituted, may dismiss the same after the expiration of said two-year period, so as to prevent this complainant from defending its liability under the policy on the ground of misrepresentation and fraud, as has been above set out, and this complainant is without adequate remedy at law in the premises and the only protection it has against the effects of said misrepresentation and fraud is in a court of equity.”

The fraud on which the bills sought cancellation consisted of alleged false statements by the insured in his application for insurance as to the state of his health at the time of application and for several years previous thereto, and the medical attention and service that he had theretofore had because of the condition of his health. On September 26, 1932, each appellant moved to dismiss the bill. One of the grounds stated was that the bills did not state facts sufficient to constitute a valid cause of action in equity. No action was taken on those motions until July 28, 1933, when they were overruled. While they were pending and on October 27, 1932, appellee filed supplemental bills in which it was alleged that appellants on October 11, 1932, had instituted in the court below in which the bills were pending actions at law to recover the amounts named in the policies, and that if appellants were not enjoined and restrained they would prosecute these legal actions to determination prior to obtaining decrees in equity on the two bills, and it was prayed that they be restrained from doing so. On August 29, 1933, counsel for the respective parties submitted to the court a stipulation. It recited the dates of the filing of the bills, September 3, 1932; the date of instituting the two actions at law, October 11, 1932; the pendency of appellee’s motions to restrain the prosecution of the law actions until the equity suits could be tried; and the agreement of the parties that the suit in equity should be tried before the law actions were tried;

“Provided, However, that the issues in said law action shall in the meantime be made up in order that said law issues thus joined shall stand ready for trial, with the understanding that said law issues, if any remain for trial shall be tried as soon after the trial of the suit in equity as the court shall determine.

“It is further agreed by the parties hereto that if this stipulation meets with the approval of the court, that a stipulation and agreement to the same effect shall be entered in said law action.

“It is further agreed that if this stipulation does not receive the approval of the court, that then and in that event Complainant’s application for an order restraining and enjoining further proceedings in said law action shall be presented to the court as soon as it will hear the same.”

Defendants answered the bills on October 10, 1933. After admissions and denials, they denied that complainant was entitled to the relief demanded in the bills. The two equity causes were consolidated for trial, and early in January, 1934, they went to final hearing followed by decree on December 7, 1934, which cancelled the policies and ordered that they be delivered to the clerk of the court for surrender to plaintiff.

Fraudulent representations and willful concealment of the truth in transactions with another that do or will result in damage to him are actionable and relief is within the concurrent jurisdiction of law and equity, except where restricted by controlling authority to one or the other court. Without such restrictions it would seem to be orderly procedure to permit the court which first obtains jurisdiction of the controversy to adjudicate all the rights of the parties. There are two correlated provisions on the subject — one constitutional, the other statutory. The Seventh Amendment to the Constitution of the United States provides:

“In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.”

The sixteenth section of the original Judiciary Act (1 Stat. 82), which has been continuously retained in all material respects though with slight changes of phraseology, is now section 384, 28 U.S.C.A.:

“Suits in equity shall not be sustained in any court of the United States in any case where a plain, adequate, and complete remedy may be had at law.”

These provisions have seemed so important to the rights of the citizen and orderly procedure in the two jurisdictions that they have been enforced by the Federal courts of their own motion even when not asserted and claimed by a litigant. Indian Land & Trust Co. v. Shoenfelt (C.C.A.) 135 F. 484; Hipp v. Babin, 19 How. 271, 15 L.Ed. 633; Cappetta v. Atlantic Refining Co. (C.C.A.) 74 F.(2d) 53, 98 A.L.R. 418; Phoenix Mut. Life Insurance Co. v. Bailey, 13 Wall. 616, 20 L.Ed. 501; Cable v. Insurance Co., 191 U.S. 288, 24 S.Ct. 74, 48 L.Ed. 188. The opinion of the court in the Cable Case reannounces the principles declared in the Bailey Case. These differences in fact, however, appear in those cases. In the Bailey Case, as in the case now under consideration, the bill in equity was filed first, and thereafter the beneficiary instituted her law action in the same court. In the Cable Case the law action was instituted in a state court about one and a half hours prior to the filing of the equity suit by the insurance company in the Federal court. In the Bailey Case and in the case now under consideration no special circumstances were set up to support and that would support equitable jurisdiction. Tn the case now under consideration it was alleged that during the one and a half years remaining in which the insurer might contest the validity of the policies the beneficiaries might not institute actions at law so that it could plead thereto the fraud alleged in the bill, or if the beneficiaries should bring such suits they might dismiss them at the end of the contestable period, and in that way defeat appellee’s defense of fraud. Those are not allegations of fact. They are mere sitrmises. It did not allege that the beneficiaries had declared their intentions of doing what the bills alleged they might do. No other special circumstances appear in the bills as basis for the exercise of a Chancellor’s powers. In the Cable Case special circumstances were alleged in the bill as grounds for equitable intervention, but the Supreme Court held them insufficient for that purpose. When the Cable and Bailey decisions are attentively read and carefully considered, followed by the Di Giovanni Case, 296 U.S. 64, 56 S.Ct. 3, 80 L.Ed. 47, and Enelow v. Insurance Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440, to which we referred in our prior opinion, it is more than ■ difficult to find error in our judgment of reversal. When appellee filed its bilis it was in no present danger of losing its right to defend in law actions if they should be brought by the beneficiaries on the policies. Approximately a year and a half remained for that procedure. Actions were brought on the policies by the beneficiaries thirty-eight days after the bills were filed and before issues were made up in the equity suit. It can not be maintained that from the time those actions were instituted the appellee did not have a plain, adequate, and complete remedy at law for the grievances set. up in its bills by answering in the law actions. Adamos v. Life Ins. Co., 293 U.S. 386, 55 S.Ct. 315, 79 L.Ed. 444. The statute prohibits the sustaining of a suit in equity under those conditions. The relation of the parties to each other at that time was precisely as it was in the Bailey Case. The Circuit Court dismissed the bill without prejudice. The Supreme Court approved and affirmed, because the insurer could have all its rights adjudicated by answer to the action at law, instituted after the bill was exhibited to the Chancellor and his protection sought, and the beneficiaries would not be denied the right of trial by jury. Here the law actions were instituted within a reasonable time (four months and eleven days) after the loss occurred. If the beneficiary sues on the policy so that insurer has reasonable time thereafter within the two years to prepare and file its answer attacking the validity of the policy, that is enough to require the court to adjudicate the whole controversy in the law action, in the absence of other equitable grounds to support insurer’s previous resort to equity. Our order was like that in the Bailey Case, that the bills be dismissed without prejudice. If occasion should arise disclosing an equitable right in appellee, the court could give protection.

It is insisted that the stipulation of counsel that the equity suit be heard first and that the law actions be continued until that could be done should be binding on appellants. The stipulation was not exclusively an agreement between the parties. It provided that its terms should meet the approval of the court and if it did not receive the court’s approval that then and in that event complainant’s application for an order restraining and enjoining further proceedings in the law actions would be presented to the court. The stipulation did not relieve the court of its duty, discussed in the authorities above cited, of complying with the express requirements of the statute, that no court of the United States shall sustain a suit in equity where a plain, adequate, and complete remedy may be had at law, nor deny a jury trial of a law action unless both parties expressly waive it. Acting contrary to this duty the court in this case approved the stipulation when it should have been denied.

It seems unnecessary to review the many cases cited in the briefs, because of differences in facts. In some of them grounds for equitable relief were set up in the bills aside from and in addition to the facts that constituted a basis for decree. In others no such bases for equitable relief were pleaded, and those bills were bad in our judgment.

We hold (1) that the bill did not show equity, and the motion to dismiss should have been sustained; (2) that appellee had opportunity from and after October 11, 1932, until February 23, 1934, to file answers to the actions on the policies and thus avail itself of its plain, adequate, and .complete remedy at law for redress of the grievances set up in the bills; and because thereof this court did not err in its reversal of the decrees in said suits in equity.