Washington Agency v. Ins. Com'r , 309 Mich. 683 ( 1944 )

I am not in accord with the foregoing opinion. While a writ of mandamus is a writ of grace, nevertheless it should be issued where a public officer does something that he is not authorized to do or refrains from doing something that he ought to do. It is not merely a question of discretion when he refuses to renew a license for reasons not supported either by law or facts. The foregoing opinion upholds the commissioner on the grounds that the Washington Agency, Inc., is a corporation which by indirection and subterfuge obtained its license in order to evade the State statute and the Federal statute (12 USCA, § 92). There is no breach of the Federal statute when a corporation, not a bank, goes into the insurance field and establishes an insurance agency. The correspondence introduced shows that there was no objection by the controller of currency or any other Federal authority to the plaintiff going into the insurance field. In a letter from the deputy controller, it was stated that it was recognized that the agency corporation would be an affiliate of the bank, and the arrangement had the government's approval. Surely the insurance commissioner could not claim there was any infraction of the Federal statutes.

The main objection is made on the ground that plaintiff was organized so that by indirection and subterfuge it could obtain a license. We fail to see any basis for this claim. The plaintiff was organized legally to do a lawful business that it was precluded from doing as a national bank under the Federal banking law. That law apparently does not prevent a bank from forming an affiliate and engaging in a lawful business. There are many things a bank cannot do. It cannot engage in a mercantile manufacturing business although through foreclosure or some other reason it might be a wise thing for a bank to do. It would beultra vires. There was no subterfuge in what plaintiff did openly and legally. I see no indirection in forming a distinct, separate corporation of this nature.

No claim is made that borrowers at the bank were obliged to take out more insurance than was required as security. They had the option to insure where they preferred. It was a convenience to them as well as to the bank to have any insurance required for a loan placed promptly with a responsible agent. Clearly, it is evident that the business largely originated in the bank and the profit from it went to the stockholders in the corporation who are also stockholders of the bank. A similar situation exists in other corporations formed by finance, mortgage and real-estate companies, as well as other corporations where a large amount of insurance is frequently required for customers or employees. The office of the plaintiff is no longer in the same building as the bank. The trust was partly dissolved, and, to remove even any remote suspicion, it should be completely dissolved so that the stockholders own their stock outright and none of the stock should be tied up in any way with the bank. This would remove any possible objection as far as I can see to the plaintiff being entitled to renewal of its license.

Stress is laid upon the case of People, ex rel. AttorneyGeneral, v. Michigan Bell Telephone Co., 246 Mich. 198 (P.U.R. 1929 B, 455, P.U.R. 1929 E, 27), but this case and others wherein the corporate entity had been disregarded have been fully discussed and distinguished in Gledhill v. Fisher Co.,272 Mich. 353 (102 A.L.R. 1042).

A similar question was presented in Finley v. Union JointStock Land Bank of Detroit, 281 Mich. 214, 220, wherein we said:

"In the case at bar the land bank did not own directly or indirectly any stock in the Central States Investment Corporation. The investment company had an independent corporate existence and charter; it filed its annual reports; kept its own minutes of its meetings and from time to time it held meetings of its stockholders and directors. It was organized as a profit-sharing corporation; the profits, if any, were to go to its individual stockholders."

In Re Watertown Paper Co., 94 C.C.A. 528 (169 Fed. 252), in the opinion of Judge Noyes of the circuit court of appeals for the second circuit, the question was presented as to whether a pulp company and a paper company, two corporations in which the stockholders were largely the same, should be treated as one corporation and the corporate entity should be disregarded. The court said:

"Now, it is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations with which it may be connected. The fact that the stockholders of two separately chartered corporations are identical, that one owns shares in another, and that they have mutual dealings, will not, as a general rule, merge them into one corporation, or prevent the enforcement against the insolvent estate of the one of an otherwise valid claim of the other. As said by the supreme court of Arkansas in Lange v. Burke, 69 Ark. 85, 89 (61 S.W. 165), in holding, in a case where two corporations were practically controlled by the same stockholders and had had intimate business relations, including the employment of the same bookkeeper, that a claim of one corporation would be enforced against the insolvent estate of the other:

"`A corporation is an artificial being separate and distinct from its agents, officers, and stockholders. Its dealings with another corporation, although it may be composed in part of persons who own the majority of the stock in each company, and may be managed by the same officers, if they be in good faith and free from fraud, stand upon the same basis, and affect it and the other corporation in the same manner and to the same extent, that they would if each had been composed of different stockholders and controlled by different officers.'"

It also quoted from an opinion of the sixth circuit court of appeals in Richmond I. Const. Co. v. Richmond, N.I. B.R.Co., 15 C.C.A. 289, 292 (68 Fed. 105, 34 L.R.A. 625), as follows:

"The contract company was a legal corporation, wholly distinct and separate from the railroad company. The fact that the stockholders in each may have been the same persons does not operate to destroy the legal identity of either corporation. Neither does the fact that the one corporation exercised a controlling influence over the other, through the ownership of its stock or through the identity of stockholders, operate to make either agent of the other, or to merge the two corporations into one."

Recently in Goodpastor v. Southern Insurance Agency, Inc.,293 Ky. 420 (169 S.W. [2d] 1), a question arose very similar to that presented in the instant case. The court stated:

"Appellant insists that Southern was formed by the stockholders of Commercial merely as a subterfuge and to circumvent § 298.190 KRS and allow Commercial to obtain a resident agent's license through Southern. We are asked to ignore what appellant terms the corporate fiction of Southern and to draw aside its veil as a corporate entity and to hold that it is but Commercial clothed in different raiment, citing Louisville N.R. Co. v. Carter,226 Ky. 561 (10 S.W. [2d] 1064); Markell v. Hilpert, 140 Fla. 842 (192 So. 392); State, ex rel. Johnson Higgins Co., v.Safford, 117 Ohio St. 576 (159 N.E. 829). An examination of these authorities shows they hold that where one corporation is owned or so controlled by another as to make it but a sham or dummy for the former, the courts, where necessary to promote justice, will ignore the corporate fiction of the dummy and seize upon the real corporate entity. But here we have no such situation. Southern was separate and distinct from Commercial and was neither owned nor controlled by it. The fact that practically the same stockholders owned both corporations does not affect the corporate entity of the two companies, nor reduce Southern to the status of being a sham or dummy for Commercial. * * *

"In the instant case the majority of Southern's stock was not owned by Commercial but by the stockholders of the latter. Commercial was not attempting to enter Kentucky as a local insurance agent through a dummy corporation. Commercial had no connection with Southern although both were largely owned by the same stockholders. As stated above, it is quite a different situation where one corporation owns the majority of the stock of another from that where the majority of stock in both are owned by the same persons."

It is true that the court came to a different conclusion inState, ex rel. Johnson Higgins Co., v. Safford, 117 Ohio St. 576 (159 N.E. 829), and in State, ex rel. Federal Union Ins.Co., v. Warner, 128 Ohio St. 261 (190 N.E. 575). The facts, however, in these cases are far different from those in the instant case.

There is no claim that plaintiff has done anything illegal or unlawful. If it does defendant has an adequate means of stopping it. We believe, to remove any question, the trust by which all the stockholders trusteed their stock, and which has been modified so as to enable them to withdraw the stock from the trust, should be dissolved and the stock turned over to the stockholders. This should remove any suspicion of the grounds of which defendant is fearful. The license for plaintiff should be renewed on condition that the trust is promptly dissolved and the stock turned over free from such trust to the stockholders, all of which should be done within a reasonable length of time.

A writ of mandamus should be issued to this effect but without costs, a public question being involved.