Opposition Brief — Haines v. Pennsylvania

—

Office - Supreme Court, U. §

e bie ee

SUPREME COURT OF THE UNITED |states |

HAROLD 8. WILLEY, Clerk

a

OCTOBER TERM, 1953

No. 229

ROLAND O. HAINES, ET AL., Comprising Keysrone

PoLicyHoLpERS’ COMMITTEFR,

Appellants,

vs.

COMMONWEALTH OF PENNSYLVANIA, ET AL.

APPEAL FROM THE SUPREME COURT OF PENNSYLVANIA,

MIDDLE DISTRICT

STATEMENT OPPOSING JURISDICTION AND

MOTION TO DISMISS

v

D. Aurnur MaGaziner,

Maurice STern,

Davin A. Saurzpure,

JOSEF JAFFE,

Counsel for Appellees.

BL

INDEX

Sussecr Inpex

Page

Statement opposing jurisdiction 1

Summary of relevant facts __. 1

Appeal does not lie as the method of review 5

There is no jurisdiction to review either by way

of appeal or certiorari s

The decree of dissolution was not appealed 8

The federal question was not properly raised

or preserved in the state courts i)

There is no present case or controversy 13

No substantial federal question is pre-

sented 15

The decision rests upon non-federal grounds

which independently support the judg-

ment 20

Motion to dismiss appeal on grounds of jurisdiction

under Rule 12(3) 23

TasLe or Cases CIrep

Anderson National Bank v. Luckert, 321 U.S. 233 18, 19

Bowe v. Scott, 233 U.S. 658, 34 S. Ct. 769, 58 L. Ed.

1141 12

Buchanan, In re, 158 U.S. 31, 15S. Ct. 723, 39 L. ed.

S84 21

Chapin v. Fye, 179 U.S. 127, 21 8. Ct. 71, 45 L. ed.

119 12

Charleston Federal Savings and Loan Association v.

Alderson, 324 U.S. 182, 65 S. Ct. 624, 89 L. ed.

87 6, 8, 12

Commonwealth v. Mmisters Protective Society, 294

Pa. 6 16

Commonwealth, ex rel. v. Equitable Casualty and

Surety Company, 306 Pa. 19 16,17

Commonwealth, ex rel. v. Penn General Casualty

Company, 316 Pa. 1 16

—d47

ED. THROUGH POOR COPY

al

ncn

oR cS he Ler P eT =

nt Net <n ce aA

SONNE

a

ax

il INDEX

Consolidated Turnpike Company vy. “yy and

Ocean View Railway Company, 228 U.S, 826, 35S.

('t, 510, 57 L. ed. 857

De Hes v. Oregon, 229 U.S. 358, 57S. Ct. 255, 81 LL,

ed, 2

Pe v. - Council of Virginia, 216 U.S. 396, 30

S. Ct. 295, 54 L. ed. 5384

Gibbes v. Zimmerman, 290 U.S, 326, 54S. Ct. 140, 78

L. ed. 342

Grayson Vv. Harris, 267 U.S. 352, 45S. Ct. 317, 69 L.

ed, 652

Highlands Farms Dairy v. Agnew, 300 U.S. 608, 57

S. Ct. 549, 81 L. ed. 835

Kina v. West Virginia, 216 U.S, 92, 80.8. Ct. 225, 54

L. ed. 3896

Little v. Bowers, 1384 U.S. 547, 10S. Ct. 620, 53 L. ed.

1016

Live Oak Waters Users Association vy. Railroad Com-

mission of California, 269 U.S. 354, 468. Ct. 149, 70

L. ed. 805

Middletown v. Pennsylvania Public Utility Commis-

sion, 143 Pa. Super. Ct. 444

Mills v. Green, 159 U.S. 651, 16 S. Ct. 182, 40 L. ed.

293

Mine Safety Appliances v. Forrestal, 326 U.S. 371,

66S. Ct. 219, 90 L. ed. 140

Montgomery County Bar Association v. Rinalducei,

5329 Pa, 296

Morrison vy. Watson, 154 U.S. 111, 14S. Ct. 995, 38 L.

ed, 927

Mutual Life Insurance Company v. McGrew, 188 U.S.

291, 23S. Ct. 375, 47 L. ed. 480

Otto v. Western Saving Fund Society, 343 Pa. 615

Penn General Casualty Company v. Commonwealth

of Pennsylvania, 294 U.S. 189

Pennsylvania Railroad Company v. Illinois Brick

Company, 297 US. 447, 568. ( ‘t. ge SU L. ed. T96

Philadelphia ig lation L. S. ve Philadelphia, 139

Pa. Super. Ct. 560

Pink v, A.A, F} Highw ay Eapress, lncorporated, 314

U.S. 201

-

INDEX

Quong Ham Wah Company v. Industrial Accident

Commission of California, 255 U.S. 445, 41S. Ct.

373, 65 L. ed. 7238

Stainback v. Mo Hock ile Lok Po, 336 U.S. 368, 69

L. ed. 606, 93 L. ed. 741

Texas and Pacific Railway Company v. Abilene Cot-

ton Oil Company, 204 U.S. 426, 27 S. Ct. 350, 51

L. ed. 593

Thomas v. Lowa, 209 U.S. 258, 28 8. Ct. 487, 52 L. ed.

782

Union Trust of Pittsburgh Case, 359 Pa. 363

Wilson v. Cook, 327 U.S. 474, 66'S. Ct. 668, 90 L. ed.

793

SraTuTes AND OTHER AUTHORITIES CITED

Act of June 25th, 1947, ¢. 646, 62 Stat. 929, 28 U.S.C.

1257 (2)

Constitution of the Commonwealth of Pennsylvania,

Article 1, Section 9

Michigan Law Review, Volume 37, Page 540

Pennsylvania Insurance Department Act of May

17th, 1921, P. L. 7891, (40 PLS. 202-206) :

Section 215

Section 214

Section 321

Section 501

Sections 502 through 506 1, 7, 14, 15

Section 507

Pennsylvania Statutes, Title 40:

Section 51

Section 131

Sections 202 through 206

5, 7, 19

5, 7,19

5

, 16,17

5

19

19

1

RL ONCE NO IER EY A OT eS Oe . ae

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1953

No. 229

ROLAND O. HAINES, ET AL., Comprisinac Keystone

PoLicyHOLpERS’ COMMITTEE,

Appellants,

vs,

COMMONWEALTH OF PENNSYLVANIA, ET: AL.

APPEAL FROM THE SUPREME COURT OF PENNSYLVANIA,

MIDDLE DISTRICT

STATEMENT UNDER RULE 12 (3) OPPOSING THE

JURISDICTION OF THE SUPREME COURT OF THE

UNITED STATES.

I. Summary of Relevant Facts

On June 26, 1947, the Court of Common Pleas of Dauphin

County, Pennsylvania, entered a final decree dissolving the

Keystone Mutual Casualty Company, vacating its charter,

ending its corporate existence and directing the Insurance

Commissioner to liquidate its business and affairs under

Sections 502-506 of the Insurance Department Act of May

17, 1921, ?. L. 7891 (40 P. S. 202-206). The decree was en-

—_ eae Lae aad

ete

wwe § ee wr

ee

tered upon suggestion of the Attorney General acting at

the relation of the Insurance Commissioner and established

that the Company was insolvent and that its further trans.

action of business would be hazardous to its policyholders,

its creditors and to the public (R. IS3la, 1835a).

Prior to the entry of the decree an audit of the Com-

pany ’s assets and liabilities disclosed that it had a deficit

of approximately one and one-half million dollars instead

of a surplus of approximately the same amount, as reported

in its 1946 annual statement. (R. 1035a-1037a).

The principal officers and managing heads of the Com.

pany had examined the balance sheet of the auditors estab.

lishing its inselveney and had admitted that the figures

were substantially correct (R. S97a, 949a, DS4a, 1547a,

Isa). Moreover, independently of the audit, the said

officers had admitted to the Insurance Commissioner that

the Company was inselvent and that they had falsified the

annual statement of the Company ina material respect for

vioeh eet they were subsequently indicted and convicted

a eromimal offense. (R. T5la, 825a).

wv te the entey of the decree, the Secretary and man-

seine head of the Company acknowledged that funds could

tbe paeed ty place the Company in a solvent condition

Hoe) Perther the Company was represented by coun-

to beorine before the deputy Attorney General on

PT at whieh time he reiterated the impossibility

sured funds but acknowledged that the

comer bed extended every opportunity

, to weoerplish this, OR. 1768a, 1769),

I" , belt before the deputy Attorney General

sop trention fer the deeree of dissolution was

Teh Soofren Sef the Insurance Department Act

hee of the seid hearing was given to each

t primerpal offieer on Jane 14, 1947, (R. 1759a,

Hi ins The Board of Direetors of the Company met on

3

June 24, 1947 at which time a resolution was adopted recit-

ing the efforts of the Company to raise money and its

inability to do so, directing that the Insurance Commis-

sioner immediately take charge of the Company, accepting

the resignations of all officers in order to facilitate a pur-

chase or rehabilitation of the Company, and authorizing

NX. P. Kann, Secretary and attorney-in-faet, to join with the

Insurance Commissioner ‘‘in any legal action necessary for

the Insurance Commissioner to take charge of the Cor

pany’’. (R. 176la, 1762a).

None of the officers or directors appeared at the hearing

but the Company was represented by its general counsel

who was present and did not object or protest when the

deputy Attorney-General announced his intention of apply-

ing for an order of court liquidating the Company. (R.

l776a).

On June 26, 1947, the same attorney entered a general

appearance for the Company in the legal preeeedings in-

stituted, joined in writing in the prayer of the Suggestion

of the Attorney General, waived issuance of the rule and

notice required under Section 504 of the Act and consented

to the granting of the relief prayed for ‘‘to the extent of

the authorization contained in the resolution of the Board

of Directors—’’ (R. 1839a). Included in the very suggestion

consented to was a prayer for liquidation of the Company.

(R. 1958a).

From the date of the entry of the final decree on June

2%, 1947 until December 18, 1950, the assets of the Com-

pany were being liquidated by the Insurance Commissioner

during which time twenty-six States in which the Company

did business were giving full faith and eredit to the final

decree and were turning over assets to the Pennsylvania

Insurance Commissioner. Also, during this period of three

and one-half years, many cases against assured of the

Company had been settled, judgments against assureds

4

had been entered, many injured persons had waived their

rights and thousands of claimants had abandoned claims,

(R. 1782a, 1735a, 1747a).

No appeal was ever taken from the entry of this final

decree. (Docket Entries, R. 19472) (Opinion of Court, R,

170la). Until the appeal to the Supreme Court of Penn.

syivania on the collateral issue of a mistake of facet approxi.

mately five vears after the entry of the decree, no officer,

director, policyholder or attorney complained of lack of

notice or opportunity to be heard. No testimony was

solicited at the hearings of the case from the officers or

directors, although N. P. Kann, Seeretary and manager,

Was an intervenor, and J. D. O'Neil, a Vice-President, was

a member of an intervening committee, appellants here.

On December 18, 1950, a succeeding Attorney General

and Insurance Commissioner filed a petition with the

Dauphin County Court to vaeate the Decree of June 26,

1947 averring that it was entered under a mistake of fact

in that the Company was solvent as of that date, that the

Company was still solvent and could be rehabilitated and

that the vacation of the decree was sought for the purpose

of effecting a rehabilitation of the Company. Nowhere in

this petition is there any averment of lack of notice or

an absence of due process of law in the entry of the decree,

(R. Wa). Appellants, representing certain polievholders,

joined in the prayer of the petition which was opposed by

the Govistein Committee, appellee here, and by others, rep-

resenting claimants and creditors. (R. 19a).

A lengthy trial of the issues was held in the Dauphin

4 County Court before Judge Neely, sitting as a jury, and

in a comprehensive opinion containing findings of faet and

conclusions of law dated March 17, 1952, joined in by the

7 entire lower Court sitting en bane, the petition to vacate

was dismissed (R. 1657a). Neither the present Attorney

General nor the Insurance Commissioner, at whose instance

ee ee eee es yANNANTEER ar - - fo oie oh erian! t

~

0

the petition to vacate was filed, appealed from the findings

of the lower Court or from the order dismissing the peti-

tion. Appellants, however, appealed to the Supreme Court

of Pennsylvania which affirmed the judgment of the lower

Court,

II. Appeal Does Not Lie as the Method of Review

The validity of a state statute as being repugnant to the

Constitution or laws of the United States was rot drawn in

question, Act of June 25, 1947, c. 646, 62 Stat. 929, 28

U.S. C. 1257 (2).

No appeal was taken from the entry of the final decree

of liquidation and dissolution. The proceedings giving rise

to this appeal were based upon a petition to vacate the

decree on the equitable ground of a mistake of fact as to

the insolvency of the Company and the corresponding an

swer denying the mistake of facet. (R. la, a). The

petition did not even raise the question of lack of notice

or lack of due process in the entry of the decree, much less

the effect and requirements of Sees, 213, 821 and 501, 507,

inclusive, of the Pennsylvania Insurance Department Act,

the validity of which it is now contended, were drawn in

question,

Under the law of Pennsylvania, the issue was deter-

mined by the pleadings, Offo v. Western Saving Society,

345 Pa, 615 (1942).

The question of lack of notice and lack of due process was

raised for the first time at the oral argument before the

lower Court en bane and it was raised by the deputy At-

torney General who has not appealed. It was never raised

by the appellants. Under the law of Pennsylvania, matters

not preperly raised in the Court below cannot be invoked on

appeal, notwithstanding that they involve constitutional

questions, Montgomery County Bar Assn, vy. Rinalduce’,

20 Pa. 296; Middletown v. Pennsylvania Public Utitity

“wv

2 ee

6

Commission, 143 Pa. Super. Ct. 444; Phila. Assoc. LS. y,

Philadelphia, 139 Pa. Super. Ct. 560,

In appellants’ statement of the questions to be argued

on appeal in the Supreme Court of Pennsylvania (required

by the Rules of the Supreme Court of Pennsylvania) the

only indirect reference to the subject matter is contained

in question number five, as follows:

**5. Did the decree of dissolution, entered on June 26,

1947, deprive the company and its policyholders of

property without due process of law?"’

The briefs filed by appellant in the Supreme Court of

Pennsylvania make reference to the particular sections

of the Insurance Department Act now alleged to have been

drawn in question, but such briefs do not form part of the

State Court record for the purpose of review by the Su-

preme Court of the United States. Live Oak Water Users

Assn. v. Railroad Commission of California, 269 U.S. 354,

357-358, 46S. Ct. 149, 70 L. Bd. 305,

The reference to ‘‘due process of law’

statement of questions number 5 was not directed explicitly

to the requirements of the Constitution of the United States

,

in appellants’

even by implication since a similar clause is contained in

the Constitution of the Commonwealth of Pennsylvania,

Article 1, Section 9.

There has not been the ‘texplicit and timely insistence”

in the State Courts that the Insurance Department Act as

CAO) S CONC Fe. 9°97 SF

Bi Sie Pic Gu Oe ES-ES OSGI GEG, 8 FF OFS

which is essential to jurisdiction on appeal. Charleston

Federal Savings & Loan Assn, v. Alderson, 324 U.S. 182,

65 S. Ct. 624, 89 L. Ed. 857.

Nor did the decision of the Supreme Court of Pennsyl

vania sustain the validity of the Insurance Department Aet

against an attack on federal grounds as required for ju-

risdiction on appeal. 28 U.S.C. 1257 (2).

7

The Opinion of the Supreme Court of Pennsylvania af-

firming the judgment of the lower Court makes no reference

to the due processes clauses of the Federal Constitution, as

distinguished from the due process clause of the State

Constitution. It was unnecessary to do so since appellants

had not been explicit in their statement of questions to

be argued on appeal.

Further, appellants have never contended that the Insur-

ance Department Act does not provide adequate notice and

an opportunity to be heard. They contend that the Com-

pany and its polievholders were deprived of their property

without due process of law because the respective notices

and hearings allegedly required by Sections 213, 321 and

56 of the Aet were not given to them. Appellants state

(Page 9 of Statement as to Jurisdiction) that ‘notwith-

standing the mandatory nature of these safeguards in the

Insurance Department Act, the Court of Common Pleas

decided against these contentions.’’

As far back as the oral argument before the lower Court

sitting en banc., the deputy Attorney General stated in his

brief: (Page 28)

“The deficiencies in the present case are not at all

attributable, however, to the statute, compliance with

which would have satisfied the requirements of due

process (National Auto Corp. v. Barford, supra at 315),

but rather to a lack of adherence to the fundamental

requirements of the statute itself."’

“The ‘Supreme ‘Court ‘of Pennsylvania, - therefore, «was

never asked to consider the constitutionality of these par

ticular sections but rather whether the notices and hearings

required were indeed given or waived,

The jurisdiction of the Supreme Court of the United

States to review a judgment or decree of a State Court on

appeal, as distinguished from certiorari, is not established

by a mere showing that determination of the cause involves

8

consideration of a statute instead of expressly sustaining

the validity of the statute against an attack on federal

grounds. Stainback v. Mo Hock Ke Lok Po, 336 U.S. 368

69 S. Ct. 606, 98 L. Ed. 741.

Where it is claimed that rights and immunities under

the Federal Constitution prevent the application of the

statute, rather than the point that the State Statute, if

so applied, would be invalid because repugnant to the Fed.

,

eral Constitution, an adverse ruling of the State Court is

a denial of a claim of Federal rights and immunities and

not a ruling upon the validity of the statute itself. In such

case, the remedy, if there be ove at all, is by way of cer.

tiorari and not by way of appeal. Wilson v. Cook, 327

U. S. 474, 482; 66 S. Ct. 6638, 90° L. Ed. 798; Charleston

Federal S & L Assn, v. Alderson, supra; 37 Mich. L. Rev.

o40,

III. There Is No Jurisdiction to Review Either by Way of

Appeal or Certiorari

(1) The Decree of Dissolution Was Not Appealed

The original decree of June 26, 1947 was a final order

and decree from which no appeal was taken. By a petition

filed over three and one-half years later, appellants invoked

the equitable power of the Court to vacate the decree be-

cause, it was alleged the Company was solvent both at

the time of the entry of the decree and at the time of filing

the petition and there appeared to be no valid reason why

an attempt should not be made to rehabilitate the Company,

The issue raised by the pleadings was purely factual.

Had the petitioner raised the issue of lack of notice or

lack of due process in the entry of the decree as the basis

for the petition to vacate, he would have been confronted

with the fatal objection that the decree was not appealed

to the Supreme Court of Pennsylvania within the required

period of three months,

RRERIE ER WEN OMY CH CR Hg Ate TO aru Pan =”

9

Appellants, having adopted the petition of the Attorney

General, are in no better position than he would have been.

What they are really endeavoring to accomplish indirectly

is a review of the original decree which, not having been

appealed, was not a judgment of the highest Court of the

State of Pennsylvania as required by the Judicial Code.

8 UL S.C. 1257.

Not having appealed the original decree, the most that

appellants could expect in the subsequent proceedings was

that some consideration be given the allegation of lack

of due process as one of a number of other factors to

influence the exercise of the equitable powers of the Court.

There is no right of appeal from the exercise of such

powers except for gross abuse of discretion and this does

not involve any Federal question.

(2) The Federal Question Was Not Properly Raised or

Preserved in the State Courts

It has already been stated in more detail that the issue

presented by the pleadings was limited to the question of

a mistake of fact as to the insolvency of the Company and

that under the law of Pennsylvania the issue is determined

by the pleadings. Otto v. Western Saving Fund Society,

supra,

It ix well settled that the proper time to raise a Federal]

question is in the trial court whenever that is required by

State practice and the Supreme Court of the United States

will abide by such local practice. Mutual Life Insurance Co.

v. MeGrew, 188 U.S. 291, 308, 23. Ct. 375, 47 L. Ed. 480;

Pennsylvania R. R. Co. vy. IWinois Brick Co., 297 U.S. 447,

462-463, 56.8. Ct. 556, 80 L. Ed. 796,

Not only did the petition and answer fail to raise the

issue of due process but all counsel acknowledged in open

Court that the only issue involved was the fact of insolveney.

10

At the hearing on February 20, 1951, the deputy Attorney

General requested leave of court to amend his petition in

order to eliminate the necessity of filing a plan of rehabili-

tation ‘‘so that it would merely leave the issue as to

insolveney or solvency .. .”* (R. 124a). The request was

granted at a further hearing on May 14, 1951, at which time

the trial judge stated that the amendment was granted—

‘*in the interest of having the issue clearly defined. . ,

namely, whether or not there was an insolvency and

is now an insolvency of this company, and also, if so,

whether or not the company should be delivered into

the hands of the Insurance Commissioner .. .’? (R,

200a ).

In response, the deputy Attorney General acknowledged

that the trial judge ‘stated as clearly as anyone could

state what the issues were and are’? (R. 201a).

At the same hearing, counsel for the appellants addressed

the Court at length regarding the issues involved (R. 208a-

210a). He mentioned nothing about lack of notice or lack

of due process and clearly stated:

‘*T think the record to be laid before us will show

also that the company has never been insolvent .. .

If it weren’t for that, there would be nothing to fight

over and no point in my clients fighting and no point in

my being here. For that reason, | am glad to note

that Mr. Stern and Mr. Saltzburg recognize that the

issue is a solvency.”’ (R. 210a).

At still a further hearing on June 18, 1951, the deputy

Attorney General stated:

es

.. « Your Honor ruled on it .. . that the issue to

be tried in this proceeding was limited to the question

of whether or not at December 31, 1946 this company

was solvent or insolvent, and whether or not it is now

solvent... We have prepared our proofs on the

basis of that issue... °’ (R. 220a),

ILLIA SLL ADO ALE. GE DES IIE

SO OY

11

Again he repeated that—

‘*We will proceed, sir, on the theory and remain on

that theory that this order to dissolve the corporation,

to vacate its charter was entered on a mistake of fact.”’

(R. 223a).

The concession of the parties bind them upon review by

the Supreme Court of the United States. Texas & Pacific

Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 434-435,

oS. Ct. 350, 51 L. Ed. 558; De Jonge v. Oregon, 229 U.S.

38, 358, 57S. Ct. 255, 81 L. Ed. 278.

Because of the insufliciency of the evidence adduced by

the appellants on the fact of insolvency, the alleged mistake

of fact, equitable relief was denied. The appellants, who

proceeded on the adequacy of notice and the validity of

the Insuranee Code during the trial of the issues, raised

for the first time the issue of lack of due process at the

oral argument before the lower Court en bane.

Under the law of Pennsylvania, matters not raised in

the court below cannot be invoked on appeal even though

they involve constitutional questions. Montgomery County

Bar Assn. vy. Rinalducci, and other eases cited, supra.

The briefs filed in the lower Court and in the Supreme

Court of Pennsyvania cannot supply the deficiency in juris

diction and do not even form part of the record for the

purpose of review. Live Oak Water Users Assn. vy. Railroad

Commission of Calif., supra.

In the appeal to the Supreme Court of Pennsylvania,

appellant was limited to the issue of the solvency of the

Company. Appellants’ inclusion of extraneous matters

in its statement of questions to be argued on appeal cannot

correct the deficiency.

Assuming, arguendo, that appellant had the right to arene

the question of due process on appeal, its assignment of

error in this regard falls far short of the requirement that

RR SLOT OEE ELA ASI EPRI ENT III BE RES IEEE TE Dante:

there be an ‘‘explicit and timely insistence’? upon the

Federal question.

For reasons hereinbefore set forth, appellants’ statement

of questions to be argued on appeal before the Supreme

Court of Pennsylvania (Question number 5) makes no ref.

erence to the particular statute or sections thereof which

are alleged to be in issue; nor is it alleged whether the

Federal or State Constitution is involved, This is fatal

to jurisdiction. Charleston Federal Savings and Loan Assn,

\, Alderson, supra; Chapin vy. Fye, 179 U.S. 127, 130, 24

S. (1. 71, 45 L. Md. 119; Gibbes v. Zimmerman, 290 U, 8,

3826, 328, 54S. Ct. 140, 78 L. Kd. 342; Bowe v. Scott, 233

U.S. 658, 664-665, 34S. Ct. 769, 58 L. Hd. 1141.

The bald allegation that there has been a lack of ‘due

process’’ is never sufficient. Thomas v. Lowa, 209 U.S, 258,

263, 28S. Ct. 487, 52 L. Ed. 782.

Appellants’ petition for reargument before the Supreme

Court of Pennsylvania attempted, for the first time to cure

the defect. Reargument was denied, but this decision can

he supported by the non-federal reason that the issue had

not been previously raised, especially where the federal

question was not specifically decided upon the petition for

reargument. Consolidated Turnpike Co. v. Norfolk & Ocean

View Ry. Co,, 228 U.S, 326, 333-334, 33'S. Ct. 510, 57 L. Ed,

857; Forbes v. State Council of Virginia, 216 U.S. 396, 399,

508, Ct. 295, 54 L. Ed. 534.

From the date of the deeree until the argument before

the lower Court, a period of over four years, no poliey-

holder, ereditor, officer or director claimed that there had

heen a failure of notice or opportunity to be heard. Con-

stitutional rights must be rigidly protected and enforeed,

but persons seeking them must assert their rights in season

and not to the prejudice of intervening rights.

Appellants contend (Page 21) of Statement As To Juris.

diction, that they did not sleep on their rights because a

TERT RUE HUEY OE TRIED CTEM ERY UO OR me FOR Oe WF 7 leeerearnagEDE roma earns re

13

committee of policyholders known as the Matlack Com-

mittee had previously intervened on June 2, 1948, and

appellants sueceeded the prior Committee ‘tin a timely

fashion to continue its challenge.’’

First, the intervention by the Matlack Committee, one

vear after the entry of the decree, cannot be said to be a

timely intervention. Second, the Matlack Committee was

permitted to intervene only to determine whether under

the facts and the law a rehabilitation of the Company was

possible. It did not allege any mistake of fact as to the

insolvency of the Company at the time of the entry of the

decree or any impropriety in the proceedings. It merely

sought to determine whether the Company was still insol-

vent. This Committee was permitted to withdraw from

the case upon its own petition which stated that solveney

or insolvency as of the present date could not be proved and

that the difficulties presented in a rehabilitation of the

Company were virtually insurmountable. (R. 1974a).

When appellants sought leave to intervene, they stated

that the purpose of their intervention was to seek a rehabili-

tation of the Company. At no time did they allege that

the decree was entered without due process of law. Every

aspect of the case points unequivocally to a waiver by ap-

pellants of any defect in the entry of the deeree by reason

of constitutional requirements.

(3) There Is No Present Case or Controversy

There is no jurisdiction to review cases on federal

grounds where the question is moot, the controversy has

heen extinguished, the questions sought to be reviewed are

wholly abstract or the happening of events has rendered

it impossible for the Court to grant any effectual relief,

Little vy. Bowers, 134 U.S. 547, 556-557, 10 S. Ct. 620, 33

L. Ed. 1016; Mine Safety Appliances v. Forrestal, 326 U.S.

371, 372, n. 2, 668. Ct, 219, 90 L. Ed. 140; Highland Farms

eee

14

Dairy v. Agnew, 300 U.S. 608, 614, 57 S. Ct. O49, STL. Bad

R25. Mille vy. Green, 159 U.S. Gol, 6598, 16 A CL. 12, 40 |,

Kd. 293.

Under Seetion 502-506 of the Pennsylvania [Insurance

Department Act, where an insurance company is insolvent

or is ina hazardous condition, the Insurance Commissioner,

through the Attorney General, may apply to the Court for

an order to show cause why the Commissioner should not

take possession of the company. The Court may then order

the Insurance Commissioner to conduct the business or jt

may order liquidation.

Appellants have admitted throughout the proceedings

that the Company should have remained in the hands of the

Insurance Commissioner with a view toward rehabilitation,

but it should not have been liquidated because it was not

insolvent and the policyholders, officers and directors did

not have adequate notice of the several hearings to prove

this fact and resist the liquidation order.

At the intitial hearings, the deputy Attorney General

stated:

‘502 is the possession section and only the possession

section. Tlowever, when the matter got to the point of

presentation to this Court, it was presented under

section 506, which is the dissolution seetion. . . Assum-

ing that the testimony offered will justify the conclu.

sion that this company was solvent... then we are

confronted with the consideration perhaps of modifying

the deeree that was entered by this Court in June of

1947, to meet the statutory requirements on this Section

502.7" CR. 208-205a).

Counsel for appellants then stated that he ‘*coneur(red)

completely with Mr, Sterling's idea that the remedy here is

that provided by Section 502 and noi the drastic dissolu-

tion provided by Section 506."

If anyone was prejudiced by the failure to receive ade-

15

quate notice or an opportunity to be heard at the time of

the original decree, they certainly lad full opportunity a

the lengthy hearings on the petition to vacate the decree,

The findings of fact, affirmed by the Supreme Court of

Pennsylvania, conclusively establish that petitioners did

yot meet their burden of proving the solvency of the Com

pany at the time of the entry of the deeree (R. 1687a).

Of equal importance, it was established that the Com-

pany Was still insolvent at the very time the petition to

vacate was filed (R. 1687a). Tt would be a vain and useless

get to vacate the decree and place the Company in the lands

of the Insurance Commissioner to conduct its business only

tobe met with a new petition for liquidation on the ground

of insolvency.

Especially is this true where the Insurance Coniiis-

sioner, Who did not appeal from the decision of the lower

Court, has advised the Supreme Court of Pennsylvania

that he doubts whether a rehabilitation of the Company

could now be consummated even if the Company were

solvent and ‘the believes that compliance with (the) ad-

monitions (of the Court below) is in the best interests of the

public and of the company, its ereditors and polievholders”’

(See Page 3, Opinion of Bell, J.).

(4) No Substantial Federal Question Is Presented

Appellants’ contentions are based upon a straiiied con

struction of the Pennsylvania Insurance Code.

Section 502 provides that when an insurance company

is insolvent or ina hazardous condition the Attorney Gen-

oral shall, after hearing, apply to the Court for an order

to show cause why the Insurance Commissioner should not

take possession, and conduet the business, and for such

other relief as may be required,

Sections 505 and 506 then explain the two remedies to be

followed where an application is made as provided for in

16

Section 502. Under Section 505, the Court shall authorize

the Commissioner to conduct the business until it can pe

returned to the Company or, under Section 506 it may order

liquidation of the Company.

Appellants contend that after the waiver of hearing by

the Company under Section 502, there should have been

another hearing granted under Section 506 before the order

of liquidation was entered. This is not the construction

placed upon these sections by the Pennsylvania Courts

Further, Section 502, of itself, authorizes the entry of a

decree of dissolution since it provides for ‘‘such other relief

as the nature of the case and the interest of its policy.

holders, creditors, stockholders, or the publie miay require.”

That Sections 502 and 506, together, with the intervening

Sections of 5038, 504 and 505, are related steps of an titegral

whole governing the manner of handling an insurance com-

pany when its business can no longer be conducted safely

with due regard for the public interest has been frequently

asserted and established by the Supreme Court of

Pennsylvania.

Commonwealth v. Ministers Protective Society, 294 Pa.

6, 10, 16 (1928). ’

In Commonwealth, ex rel. v. Equitable Casualty & Surety

C'o., 8306 Pa. 19 (1931) :

‘The act requires that, when an insurance company

becomes insolvent or otherwise contravenes Section

502, . . . the attorney general, . . . may apply

: for an order directing such company to show

cause why its business should not be wound up or

closed.”’

In Commonwealth ex rel. v. Penn General Casualty Co.,

316 Pa. 1, 4 and 5 (1984), the Supreme Court of Pennsyl-

vania said:

‘*Pennsylvania has provided a most complete system

for the regulation and liquidation of insolvent insur-

17

ance companies and the winding up of their affairs

in ‘The Insurance Department Act of 1921,’ approved

May 17, 1921, P. L. 789, 40 P.S., Section 1 and ‘The

Insurance Company Law of 1921,’ approved May 17,

1921, P. L. 682, 40 P.S., Section 341. Speaking of the

former act, we said in Com. v. Equitable Casualty &

Surety Co., 306 Pa. 19, that it is a comprehensive stat-

ute regulating the business of insuranes in the

Commonwealth.,”’

The Supreme Court of the United States also recognized

the integrity and the correlated Sections of 502, 505, 504,

and 506 in connection with the liquidation of an insurance

company.

In Penn General Casualty Co. v. Commonwealth of Penn-

sylvania, 294 U.S. 189 (1935) Justice Stone said:

“Section 502 of the Insurance Department Act an-

thorizes the Commissioner to liquidate an insurance

company When its condition is such that further trans-

action of its business will be hazardous; such liquida-

tion is permitted only on an order or decree of the

Court of Common Pieas, granted on application of the

Attorney General of the state. Upon such application

the Court is authorized by Section 505 to enjoin the

company from transacting any business and from

disposing of its property, and after a hearing to direct

the Insurance Commissioner to take possession of the

property and to liquidate it pursnant to the statute.

By Sections 506, 507, the order of the court vests the

Commissioner with the title to the property and super-

sedes the authority of any receiver appointed by any

other state court.”’

It is suggested that the Federal question raised by the

appellants is not only not substantial but the effort to raise

it is based on a construction of the statutes which have not

heen accepted by the Supreme Court of Pennsylvania nor

EED.

the Supreme Court of the United States.

The inconsequential substance of the complaint of lack of

THR OLIGH POOR COPRYV

18

adequate notice is further manifested by the obvious at.

tempt to assert that the notice to the company should have

been supplanted by notice to the policyholders or creditors,

This overlooks the very obvious point that the Insurance

Code of Pennsylvania regulates Insurance Companies,

Policvholders and creditors have derivative rights and Jig.

bilities by virtue of their relation to the company.

Pink vy. A A A Highway Express, Inc., 314 U.S. 20)

(1941).

Policyholders are not entitled to a special notice under

the statutes separate and apart from the notice to the insur.

ance company. Surely it is not to be expected that approxi.

mately 105,000 policyholders were to receive notice and be

given an opportunity to be heard while the assets were being

dissipated. Due process has never meant that everyone

who may be affected by a decree need have notice and be

a party to every stage of the proceedings. The due process

clause requiring notice and opportunity to be heard follows

a rule of reason.

Union Trust of Pittsburgh case, 359 Pa. 363 (1948);

Pink vy. AAA Highway Express, Inc., 314 U.S. 201

(1941);

Anderson National Bank vy. Luckert, 321 U.S, 233

(1944).

Notwithstanding that appellants recognized that the

notice was adequate under Section 502 and that they relied

on that section in the trial of the case, they now claim that

no notice was given under Section 506. The appellants

overlook the fact that the order or decree made under

Section 506 is the normal and sequential result of the initia-

tory proceedings under Section 502.

Penn General Casualty Co. v. Commonwealth of Penn-

sylvania, 294 U.S. 189 (1935).

LLP ONAL RTS ALITTLE POTN AG BEMED IM, a mz" EN 1 APIS GD:

19

The ‘act that the decree of dissolution was entered with-

out formal hearing did not deprive the company of due

process. The hearing had already been held under Section

502 and the Company together with its officers and directors

had received notice of the fact that the company could no

longer do business in conformity to law as established

by the Commonwealth and coneeded by the company.

Another hearing would have been a vain and repetitious

thing. The important requirement of due process is not

the hearing but the opportunity to be heard.

In the case of Anderson National Bank v. Luckett, 321

U.S. 283, Mr. Chief Justice Stone stated (p. 246):

“The fundamental requirement of due process is

an opportunity to be heard upon such notice and pro-

ceedings as are adequate to safeguard the right for

which the Constitutional protection is inveked. If

that is preserved, the demands of due process are ful-

filled.’’

Appellants admit that the Company had no right to eon-

tinue business because its reserves were below the statu-

tory requirements, but they complain that under Section 321

of the Aet (40 P. S. 131) it should have been given notice

of an inspairment of reserves and an opportunity to repair

them.

It is obvious that Section 321 deals with companies that

are not insolvent and that Sections 502-506 control where

there is insolvency. Further, the Company, through its

Board of Directors, had actual knowledge of the impair-

ment and by resolution, conceded that it had made an effort

to raise funds but was unable to do so. (R. 1761a-1762a).

Equally obvious is the requirement of Section 213 of the

Act (40 PS. 51). This section provides that an insurance

company shall be granted a hearing before the filing of a

report of an examination of its financial condition. This

section can only apply to a solvent company engaged in

20

business. Moreover, the Company here was granted a fy]

hearing before the deputy Attorney General prior to filing

the particular report with the Court.

(5) Tove Decision Rests Upon Non-Federal Grounds Which

Independently Support the Judgment

The Supreme Court of Pennsylvania, by its Opinion dated

December 8, 1952, affirmed the judgment of the lower Court

upon the following non-federal grounds which independ.

ently and adequately support the judgment.

(a) That the petition to vacate alleges the solvency of

the Company at June 26, 1947 and at the date of filing of

the petition and that petitioner did not meet the burden of

proof required of him in this regard under the decisions of

the Pennsylvania Courts.

(b) That the Company was in a precarious financial con-

dition on June 26, 1947, its officers having admitted its

insolvency; that its affairs were mismanaged, its records

manipulated and its financial condition had been fradu-

lently mis-represented by its officers.

(c) That the Company was insolvent as of the date of

the filing of the petition to vacate.

(dl) That the officers and directors waived all of the re-

quirements of notice under the Insurance Code.

Nowhere in the findings of fact of the lower Court (R.

1672a-1694a) or its conclusions of law (R. 1748a-1753a),

all of which were affirmed by the Supreme Court of Penn-

svlvania, is there any mention of due process of law. This

for the reason that pleadings determined the issue. The

case was therefore decided by the lower Court upon issues

of fact involving non-federal grounds.

It is true that the lower Court, in its opinion, discussed

the issue of notice and opportunity to be heard as required

by the Insurance Code ‘‘bearing in mind that the essential

issues raised in this petition to vacate pertain to the sol-

CFE SIP TAT rt ON ae

21

vency of this company’. (R.1736a). But such a discussion

is not sufficient to confer federal jurisdiction. Morrison vy.

Watson, 154 U.S. 111, 115, 14.8. Ct. 995, 38 L. Ed. 927.

It has been repeatedly held that the Supreme Court of

the United States is bound by the findings of fact of a state

court, especially when concurred in by the state trial and

appellate courts. Jn re Buchanan, 168 U.S. 31, 36, 15S. Ct.

723, 39 L. Ed. 884; King v. West Virginia, 216 U.S. 92, 100,

4) S. Ct. 225, 54 L. Ed. 396; Grayson v. Harris, 267 U.S.

352, 357-358, 45 S. Ct. 317, 69 L. Ed. 652.

(e) The notice and opportunity to be heard provided

for by the sections of the Insurance Code in question, as

coustrued by the Pennsylvania Courts, relate only to the

issue Of solvency which is an issue of fact. Since the find

ings of fact establish the insolvency of the company, noth-

ing prejudicial to any party occurred by reason of any lack

of notice or opportunity to be heard.

The Supreme Court of the United States has no juris-

diction where the cause involves only the proper construc-

tion of a state statute. Quong Ham Wah Co. vy. Industrial

Accident Commission of Calif., 255 U. 8. 445, 448-449, 41

8. Ct. 373, 65 L. Ed. 723.

(f) That in deciding there was no failure of due process

in the entry of the decree, the Court did not uphold the

validity of the decree against an attack on federal grounds

,

but discussed ‘‘due process’’ generally. This was made

necessary by appellants’ failure to be explicit in their state-

ment of questions to be argued on appeal. (See discussion

III (2) supra.)

It is well settled that there is no federal jurisdiction

where the decision of the State Court rests upon one or

more grounds which independently and adequately support

the judgment or decree.

“If the same judgment would be rendered by the

State Court after we correct its views of federal laws,

Ee TTHROicw DARD fARnw

22

our review could amount to nothing more than an ad.

visory opinion.’’ /Herb vy. Pitcairn, 324 U.S. 117, 125,

126, 65'S. Ct. 459, 89 L. Ed. 789.

Wuererore, the appellees move that the above appeal

be dismissed and the judgment of the Supreme Court of

Pennsylvania be affirmed.

Respectfully submitted.

D. Arruurn Macaziner,

Maurice Srern,

Davip A. Saurzpura,

Joser JAFFE,

Counsel for Appellees,

BLE!

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1953

No. 229

ROLAND O. HAINES, ET AL., Comprisinc Keystone

POLICY HOLDERS’ COMMITTEE,

Appellants,

vs.

COMMONWEALTH OF PENNSYLVANIA, ET AL.

APPEAL FROM THE SUPREME COURT OF PENNSYLVANIA

MIDDLE DISTRICT

MOTION TO DISMISS APPEAL ON GROUNDS OF

JURIRDICTION UNDER RULE 12 (3)

To the Honorable, the Supreme Court of the United States:

William Goldstein, et al., intervenors, one of the appellees,

for convenienee referred to as the Goldstein Committee,

through its attorneys, Maurice Stern, Esquire, of Maver,

Magaziner and Brunswick, David A. Saltzburg, Esquire,

of Kolander and Saltzburg, and Josef Jaffe, Esquire, re

spectfully move that the above appeal be dismissed by

EED. THROUGH POOR COPY

24

reason of the matters and grounds making against the

jurisdiction of your Honorable Court set forth in the an.

nexed statement, and that the judgment of the Supreme

Court of Pennsylvania be affirmed.

D. Arruur Macaziner,

Maurice STern,

Davip A. SaLrzpura,

Joser JAFFE,

Counsel for Appellees,

(547)