building and loan conservatorship proceedingSummary of this case from Morris, Supt. of Ins. v. Investment Life Ins. Co.
Decided December 2, 1942.
Appeal — Final order — Section 12223-2, General Code — Overruling of demurrer and motion to strike petition from files — In action by creditors to enforce superadded liability of stockholders — Substantial right of Superintendent of Building and Loan Associations affected — Superintendent has sole authority to conduct entire liquidation process — Including enforcement of stockholders' superadded liability — Creditors' action to give way to right of superintendent.
1. When, after taking over a building and loan association for liquidation under Section 687 et seq., General Code, the state Superintendent of Building and Loan Associations interposes a demurrer to a petition previously filed by creditors of such institution seeking to enforce the superadded liability of its stockholders, together with a motion to strike such petition from the files, an order of the Court of Common Pleas overruling such demurrer and motion affects the substantial right of the superintendent to enforce the superadded liability of the stockholders and is a final order within the purview of Section 12223-2, General Code, from which an appeal will lie.
2. The Superintendent of Building and Loan Associations, taking over a building and loan association for liquidation under statutory sanction, is invested with sole authority to carry on every phase of the liquidating process, including the enforcement of the superadded liability against stockholders, and an action theretofore filed by creditors to compel the shareholders to respond must give way to such right.
APPEAL from the Court of Appeals of Cuyahoga county.
In November of 1940 the pending action was commenced in the Court of Common Pleas of Cuyahoga county, as a class suit, by the appellant herein, Czech Catholic Union, an Ohio fraternal benefit society and a large creditor-depositor of The East End Building Loan Association, an Ohio corporation of the city of Cleveland authorized to accept money on deposit, to enforce the double or superadded liability against the stockholders of such association.
It is alleged in the amended and supplemental petition that the building and loan association was taken over for liquidation in November of 1933 by the Superindent of Building and Loan Associations of the state of Ohio, upon a finding that it was in an unsafe and unsound financial condition, with knowledge that the complete enforcement of the superadded liability of its stockholders was then necessary; that in December of 1936 liquidation by the directors of the association was consented to and approved under Section 687-22 a, General Code; that in January of 1939, pursuant to Sections 687-23 and 693-1, General Code, the association was restored to its corporate rights, with power to resume business in the usual and ordinary way, which power and privilege it continued to exercise until February of 1941, when, after the commencement of the pending cause, the superintendent again found such association to be in an unsafe and unsound financial condition and thereupon took charge of it for the purpose of liquidation; that thereafter the superintendent filed an application in the present proceeding to be substituted for the association as one of the parties defendant, which application was granted.
It is further averred "that from the 29th day of November, 1933, until the date of the filing of this amended and supplemental petition, said The East End Building Loan Association was in an insolvent condition and throughout such period the enforcement of superadded liability of its stockholders was necessary in order to pay its creditors and depositors the full amounts of their respective claims, and during said entire nine-year period, said Superintendent of Building and Loan Associations could have enforced or have brought about the enforcement of said superadded liability, but wrongfully and negligently failed and refused to do so, which wrongful and negligent failure and refusal affords ground for the commencement of this action by the plaintiff herein."
Next follows the prayer of the petition, asking for the submission of a complete list of the stockholders of the association and the number of shares owned by each, that such stockholders be made parties defendant to the action, and that judgment be entered against such stockholders for the full superadded liability, as contemplated by Section 3, Article XIII of the Constitution of Ohio, prior to amendment effective July 1, 1937.
A demurrer was interposed by the superintendent to the amended and supplemental petition, and a motion made that such petition be stricken from the files. Both the demurrer and motion were overruled, whereupon an appeal on questions of law was taken to the Court of Appeals.
Apparently following its decision in the case of Fulton, Supt. of Banks, v. Wetzel, 47 Ohio App. 72, 190 N.E. 776 (petition in error dismissed, Wetzel v. Fulton, Supt. of Banks, 128 Ohio St. 109, 190 N.E. 579), that court entertained the appeal and entered judgment reversing the judgment of the court below, remanding the cause "with directions to sustain the demurrer and motion to strike, filed by the Superintendent of Building and Loan Associations to the amended and supplemental petition upon the ground that the Superintendent has the exclusive right to prosecute such action * * *."
The proceding is now in this court on its merits, following allowance of the motion to require the Court of Appeals to certify its record.
Messrs. Spieth, Taggart, Spring Annat, Mr. Jack B. Dworken, Mr. Morton R. Dworken and Mr. Max M. Dworken, for appellant.
Mr. Thomas J. Herbert, attorney general, and Mr. Harry A. Hanna, for appellee.
Two principal questions are presented by this appeal. The first is whether the order of the trial court overruling the superintendent's demurrer to the amended and supplemental petition and also his motion to strike such petition from the files, constituted a final order from which an appeal would lie.
While the general rule is that an order overruling a general demurrer is not a final order permitting appeal, a majority of the court is of the opinion that the order in controversy here did constitute a final order, because in effect it determined that the superintendent, after taking possession of the building and loan association for liquidation under the statutes, was precluded from enforcing the superadded liability against the stockholders. Such order therefore affected "a substantial right" within the purview of Section 12223-2, General Code. In fact, the order amounted to an absolute declaration that the superintendent lacked the authority to maintain an action for the superadded liability as a part of the liquidating process, thereby denying him finally the exercise of that function.
The second question is whether, upon taking statutory possession of the property and business of the association in 1941, the superintendent then became vested with the exclusive privilege of enforcing the superadded liability against the stockholders.
It is the contention of the appellant that "the exclusive right of enforcement of superadded liability is vested in the superintendent only so long as he is in possession of a defunct financial institution for the purposes of liquidation," and that since the present action was properly begun at a time when he was out of possession, he could not divest the appellant of the right to maintain such action by a subsequent takeover under Sections 687 and 687-1, General Code.
Section 687-10, General Code, reads in part as follows:
"The Superintendent of Building and Loan Associations, upon taking possession of the property and business of any domestic building and loan association pursuant to this chapter, shall have, exercise and discharge the following powers, authority and duties, without order of court but subject to the provisions of this chapter, to wit: * * *
"9. If he ascertains that the assets of such association will be insufficient to pay its debts and liabilities, to enforce such individual liability of each shareholder as may exist. Until an order to declare and pay a final dividend shall be entered in such proceedings the right to enforce such liability for the benefit of all creditors is hereby vested exclusively in the superintendent."
Almost the identical language is used in Section 710-95, General Code, in relation to the state Superintendent of Banks.
Because of the nature of their business in dealing with the public's money, state building and loan associations and banks are quasi-public institutions. They are wholly creatures of statute and transact business by legislative sanction. They are subject to state regulation and control, not only by virtue of constitutional provisions but also because of the state's inherent police power. In its wisdom, the General Assembly has seen fit to create the office of Superintendent of Building and Loan Associations, whose duties are to see that the various laws appertaining to such associations are executed and administered in the public interest.
When, upon examination, the superintendent discovers that a building and loan association is in an unsafe or unsound condition, he is directed, with the written approval of his superior, to take charge of the affairs of such association and thereafter, in accordance with the statutes and under the supervision of the Court of Common Pleas, is empowered to do all things necessary and proper for the protection of every interested person.
In reading the detailed statutes relating to building and loan associations, it is apparent that the state has preempted the field in connection with the supervision of these institutions, and when the superintendent takes over an association for liquidation all phases of such activity, including the enforcement of the superadded liability of stockholders, become his to perform to the exclusion of creditors or others affected. The right of others to proceed is suspended at least until the declaration of a final dividend in the proceedings. The foregoing observations are in accord with the views expressed by this court in a number of cases. See State, ex rel. Bettman, Atty. Genl., v. Court of Common Pleas, 124 Ohio St. 269, 178 N.E. 258; Slocum v. Mutual Bldg. Investment Co., 130 Ohio St. 312, 199 N.E. 175; State, ex rel. Squire, Supt. of Banks, v. Steck, 132 Ohio St. 198, 5 N.E.2d 919.
If before the superintendent has taken over a financial institution for liquidation, creditors have inaugurated an action to enforce superadded liability of the stockholders, that action must give way to the superior rights of the superintendent.
We assume that when the facts of a particular case demand that the superintendent in charge of liquidation proceed to impose the double liability on stockholders, and he fails or refuses to respond, creditors could invoke the offices of the Court of Common Pleas to direct the superintendent to act appropriately, on the ground of abuse of discretion. Section 687-11, General Code.
Considering the judgment of the Court of Appeals herein to be correct, we affirm the same.
WEYGANDT, C.J., TURNER, MATTHIAS and HART, JJ., concur.
WILLIAMS, J., concurs in paragraph two of the syllabus but dissents from paragraph one and from the judgment.
BELL, J., not participating.