Summary
In Safford, a foreign corporation which, as a non-resident, could not obtain a license to sell insurance, was found to be the alter ego of its Ohio subsidiary because it owned a majority of the stock of the subsidiary and formed the subsidiary to circumvent the residency requirement.
Summary of this case from Association of Banks in Ins., Inc. v. DuryeeOpinion
Nos. 20769 and 20770
Decided December 28, 1927.
Corporations — Fiction of corporate entity disregarded where used for evading state law — Superintendent of insurance — Mandamus denied to compel issuance of license to domestic insurance corporation — Majority of capital stock owned by licensed foreign insurance broker.
1. In the furtherance of justice, the fiction of a corporate entity may be disregarded where the corporation is so controlled and its affairs so conducted as to make it merely an instrumentality for the purpose of evading and circumventing a state law.
2. Where a statute forbids the issuing of an insurance agent's license unless the applicant be a resident of the state, and the superintendent of insurance, pursuant to administrative precedent and in the exercise of a sound discretion, has denied a license to a domestic insurance corporation, the majority of whose capital stock is owned by the holder of a foreign insurance broker's license, upon the ground that the fiction of the domestic corporate entity is sought to be used as a means of circumventing the statute by such holder of a foreign insurance broker's license, a writ of mandamus seeking to compel the superintendent of insurance to issue such license will be denied.
IN MANDAMUS.
The case of State, ex rel. Marsh McLennan Company, v. William C. Safford, Superintendent of Insurance, No. 20770, is an original action in mandamus in this court. The relator is an Ohio corporation, having been organized in the year 1916. Said company is organized for the purpose of acting as local agent of fire insurance companies in the writing and placing of contracts of indemnity in Ohio.
Said company on August 10, 1927, made application to the respondent, superintendent of insurance, for a license to conduct said business in Ohio for the year ending February 28, 1928. The demurrer filed in the case admits, of course, the facts as stated in the petition.
Said company has been designated by the Union Insurance Society of Canton, Limited, an insurance company authorized to transact a fire insurance business in this state, as an agent of such company. All statutory steps have been duly complied with by relator, including the tender of the proper fee, but, notwithstanding, the Superintendent has refused and still refuses to issue a license to relator. The petition alleges specifically that all the facts in favor of the issuance of the license have been found in favor of the relator, and the superintendent's sole reason for refusal is based upon the fact "that a majority of the capital of relator has been contributed, and stock certificates issued accordingly, by a certain foreign corporation known as Marsh McLennan, Incorporated," which foreign corporation is engaged in the business of insurance brokers at New York, Chicago, and elsewhere.
The petition further alleges that "because said foreign broker's corporation owned a majority of the stock of relator, and for no other reason, said superintendent of insurance refused and still refuses to license relator as such local agent."
The petition further alleges that relator has the legal right to engage in business as local agent, and that the refusal of the superintendent to issue the license violates the constitutional rights of the relator, viz., Section 1, Article I, of the Constitution of Ohio, and Section 1 of the Fourteenth Amendment to the Constitution of the United States.
The petition prays for a writ of mandamus requiring the superintendent to issue and deliver to plaintiff a license authorizing it to act in the capacity of an insurance agent in Ohio for the ensuing year, pursuant to Section 644 of the General Code. Defendant demurs generally to the petition.
The case of State of Ohio, ex rel. Johnson Higgins Co., v. Williagn C. Safford, Superintendent of Insurance, No. 20769, is considered herewith.
Messrs. Conn, Hoke, Wright Benoy, for relator.
Mr. E.C. Turner, attorney general, and Mr. C.S. Younger, for respondent.
A determination of the question presented requires a consideration of Sections 644, 644-1, and 644-2, General Code. Briefly stated, these provisions may be summarized as follows:
Under Section 644, no person may be licensed to act as an insurance agent unless a resident of this state. Section 644-1 makes provision that no solicitor's license shall be issued except to natural persons, resident of the state. Section 644-2 limits the issuance of a foreign broker's license in this state to a natural person resident of another state to do in his own state an insurance business on Ohio property. That is to say, a broker may write no business and transact no insurance business within the borders of the state of Ohio.
The petition avers that the refusal of the respondent to issue the license prayed for is based on the single fact that a majority of the stock of the relator company, an Ohio corporation, is owned and controlled by a foreign corporation engaged in insurance business. This then presents two questions: (1) Whether under Section 644 the superintendent of insurance may deny to relator corporation a license on the ground that the majority of its stock is owned by a foreign corporation; and (2) if Section 644 permits the superintendent of insurance to deny to relator corporation such license on the ground aforesaid, whether such section is in violation of the Constitution of the United States and the Constitution of Ohio.
That the Ohio resident agent's law is not unconstitutional is sustained by La Tourette v. McMaster, 248 U.S. 465, 49 S.Ct., 160, 63 L.Ed., 362, and Palmetto Fire Ins. Co. v. Conn, 272 U.S. 295, 47 S.Ct., 88, 71 L.Ed., 243. In fact, we are informed by the brief of counsel for relator that the constitutionality of Section 644, General Code, is not questioned, but that the construction thereof by the superintendent of insurance, respondent herein, is challenged.
The petition herein recites, among other things:
"Said superintendent found that a majority of the capital of relator had been contributed, and stock certificates issued accordingly, by a certain foreign corporation, known as Marsh McLennan, Incorporated, engaged in the business of insurance brokers at New York, Chicago, and elsewhere; that because said foreign broker's corporation owned a majority of the stock of relator, and for no other reason, said superintendent of insurance refused and still refuses to license relator as such local agent, and further says that he will not so license it."
The record further discloses that said Marsh McLennan, Incorporated, engaged in the business of brokerage insurance, has a license from the insurance department of Ohio as a foreign insurance broker for Ohio for the current year, but that such license as a foreign insurance broker would be surrendered upon the awarding of a license to the relator as a local agent, and that, thereupon, said Marsh McLennan, Incorporated, will return said foreign broker's license and not in any wise engage as foreign broker for Ohio business.
It is therefore plain that the purpose of the securing of a license by the relator company is to enable Marsh McLennan, Incorporated, owner of a foreign insurance broker's license and owner of a majority of the stock of relator, to circumvent the statute of Ohio which prevents such license being secured by other than a resident of the state of Ohio.
To state the proposition somewhat differently, may a domestic corporation, organized for the purpose of soliciting insurance other than life, incorporated under the laws of this state, be denied a license to do business in this state merely because the bulk of its stock is owned by a foreign corporation engaged in the insurance brokerage business, which latter corporation is not enabled to secure a license to act in this state by reason of Section 644, General Code? While it is true that one corporation may own and control the stock of another corporation ( Toledo Traction, Light Power Co. v. Smith [D.C.], 205 F., 643; Bigelow v. Calumet Hecla Min. Co., [C. C.] 167 F., 704; Kardo Co. v. Adams, [C.C.A.] 231 F., 950; Section 8623-8, General Code, effective June 16, 1927), yet courts of equity do not permit corporate forms to be used for injury or wrongdoing. "The doctrine of corporate entity is not so sacred that a court of equity, looking through forms to the substance of things, may not in a proper case ignore it to preserve the rights of innocent parties or to circumvent fraud." In re Rieger, Kapner Altmark, (D.C.), 157 P. 609. In 14 Corpus Juris, 61, it is said:
"Thus it has repeatedly been held that the courts, both at law and in equity, will disregard the fiction of corporate entity apart from the members of the corporation when it is attempted to be used as a means of accomplishing a fraud or an illegal act." First Nat. Bank of Chicago v. Trebein Co., 59 Ohio St. 316, 52 N.E. 834; Brundred v. Rice, 49 Ohio St. 640, 32 N.E. 169, 34 Am. St. Rep., 589; State v. Standard Oil Co., 49 Ohio St. 137, 177, 30 N.E. 279, 15 L.R.A., 145, 34 Am. St. Rep., 541.
The case of Palmetto Fire Ins. Co. v. Conn, supra, recognizes the right of the state to tax a foreign corporation seeking to do an insurance business in Ohio without paying a resident license, under the guise of including the premium for such insurance as a part of the purchase price of a commodity (an automobile), the court saying, at page 305 ( 47 S.Ct., 89):
"Whatever technical form may be given to the reasoning, the substance is that by acts done in Ohio the purchaser obtains for himself the advantage of insurance that before that moment did not exist. * * * It would be extravagant to say that the state's general power to deny to the plaintiff the right to enter or remain within it for business unless it paid for these transactions as a part of the price, must be denied upon constitutional grounds."
The principle of denying the right to do by indirection what cannot be done by direct method is thus clearly recognized. If a non-resident insurance company cannot write insurance in Ohio without a resident license, how can this desired result be acquired by coming into the state in the guise of an owner of a controlling interest in a domestic corporation, thus seeking to circumvent the statute relative to resident licenses?
The interpretation of a given law by administrative departments, if long continued, has been recognized in this state: Industrial Commission of Ohio v. Brown, 92 Ohio St. 309, 311, 110 N.E. 744, L.R.A., 1916B, 1277; State, ex rel., v. Smith, 71 Ohio St. 13, 40, 72 N.E. 300; United States v. Johnston, 124 U.S. 236, 8 S.Ct., 446, 31 L.Ed., 389; 36 Cyc., 1140; 25 Ruling Case Law, 1043.
Sections 644, 644-1, and 644-2, General Code. prior to the amendment of March 14, 1927 (112 Ohio Laws, p. 92), have received interpretation of the insurance department of this state; and under facts so similar as to make the situation almost parallel to the instant case, a license was refused to a holder of a foreign broker's license where such license was sought by a corporation of Ohio dominated by the holder of such foreign broker's license. We think the interpretation then placed upon the statutes was correct and that the same interpretation should now prevail, in spite of the amendment of Section 644-2.
The case of Hanover Fire Ins. Co. v. Harding, 272 U.S. 494, 47 S.Ct., 179, 71 L.Ed., 372, 49 A. L. R., 713, cited by relator, and upon which State ex rel. Woodmen Accident Co. v. Conn, Superintendent of Insurance, 116 Ohio St. 127, 156 N.E. 114, was decided, relates to the unreasonable classification of domestic and foreign corporations engaged in the same business, and is not applicable to a case involving the use of a domestic corporation's entity for the purpose of evading a state law, which is the crucial question in the case at bar.
The fact that the relator was incorporated in Ohio prior to the passage of the resident agent's law, Section 644, General Code, is immaterial in view of the fact that the license is an annual privilege granted by the state, dependent upon the condition of the applicant at each annual period. The rights, therefore, of relator under Section 644, General Code, relate to these annual periods and do not depend upon the date of relator's original incorporation.
It is our conclusion that the relator company is but the alter ego of a nonresident insurance broker corporation desiring to write insurance in Ohio, but unable to obtain a resident license, and that the course pursued by it is but an attempt to do by indirection that which cannot be accomplished by direct and legal methods. Entertaining this view, the demurrer of the respondent to the petition of the relator is sustained.
The same principles control in the case of State ex rel. Johnson Higgins Co. v. William C. Safford, Superintendent of Insurance, No. 20769, and the same entry is made in that case.
Demurrer sustained.
MARSHALL, C.J., ALLEN, KINKADE, ROBINSON, JONES and MATTHIAS, JJ., concur.