Full opinion text
GIBSON, C. J. The Pacific Mutual Life Insurance Company of California (hereinafter referred to as the “old company”) and certain of its stockholders brought this mandamus proceeding in the superior court to review the action of the Insurance Commissioner in approving a plan for mutualization of a second corporation, Pacific Mutual Life Insurance Company (hereinafter called the “new company”), which had been organized by the commissioner as part of the rehabilitation of the old company. The court upheld the action of the commissioner, and plaintiffs have appealed from the judgment. In 1936 the old company was in a hazardous and insolvent condition within the meaning of the Insurance Code, and its business and assets were taken over by the Insurance Commissioner, as authorized by statute. (Ins. Code, §§1011, 1013.) Pursuant to section 1043 of the code, a rehabilitation agreement was entered into between the new company and Commissioner Carpenter, as conservator of the old company, whereby most of its assets were transferred to the new company in exchange for all the new company’s capital stock. The stock was to be held by the commissioner as conservator for the benefit of the creditors, policyholders and stockholders of the old company. The new company assumed substantially all the obligations of the old company, including a limited obligation with respect'to noncancellable accident and health policies (referred to herein as “non-can policies”), and agreed to set up a special fund for restoration of benefits to holders of those policies. In December 1936, after a hearing, the superior court approved the rehabilitation agreement and authorized the commissioner to perform all the obligations required on his part. This order ivas affirmed in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307 [74 P.2d 761], (Affd. in Neblett v. Carpenter, 305 U.S. 297 [59 S.Ct. 170, 83 L.Ed. 182].) In February 1937, an order was made providing for the liquidation of the old company and appointing the commissioner as liquidator. It was upheld in Carpenter v. Pacific Mut. L. Ins. Co., 13 Cal.2d 306 [89 P.2d 637], In 1938 the commissioner transferred the stock of the new company to five trustees who were given legal title to the stock with power to vote it in accordance with the purposes of the rehabilitation agreement. The order approving the transfer was affirmed in Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 344 [139 P.2d 908]. The rehabilitation agreement set forth the method by which a plan for mutualization of the new company could be formulated. It provided that 10 per cent of the participating life policyholders could request the new company to create an appointing committee consisting of the president of the Life Insurance Association of America, the president of Stanford University and the provost of the University of California at Los Angeles. The appointing committee was directed to select a price determination committee composed of persons skilled in matters of insurance company valuation. If the price determination committee concluded that voluntary mutualization could be practicably accomplished, it was to propose a plan of mutualization in accordance with the laws of this state. By the terms of the agreement the commissioner, as sole shareholder of the new company, consented in advance to the plan of mutualization to be formulated. A price determination committee was appointed, consisting of Alva J. McAndlcss, president of the Lincoln National Life Insurance Company of Fort Wayne, Indiana; Horace R. Bass-ford, vice president and chief actuary of the Metropolitan Life Insurance Company of New York; Ray D. Murphy, vice president and chief actuary of the Equitable Life Assurance Society of New York; and Albert J. Hettinger, a partner in Lazard Freres and Company, a firm engaged in investment banking. After three years of study the committee proposed a plan of mutualization, which provides that, upon the occurrence of certain conditions, the new company shall buy all of its own capital stock for $3,000,000, plus interest from December 31, 1948, the price to be augmented should the restoration of benefits under the non-can policies be completed before 1973. The proposed plan of mutualization was adopted by the directors of the new company on May 5, 1950. On September 22, 1950, after a hearing, Commissioner Downey approved the plan, finding that it would be fair and equitable in its operation, and thereafter it was approved by the policyholders of the new company. This proceeding in mandamus was then brought to review the action of the commissioner, and the trial court concluded that there was substantial evidence to support his findings and that he had not exceeded his jurisdiction or abused his discretion in approving the plan. Plaintiffs attack the judgment upon numerous grounds, and, although many of their contentions may be disposed of by application of principles of res judicata, we believe that the problems may be more clearly presented by first discussing the propriety of the determination of the various points without regard to the binding effect of prior adjudications. The first problem which we must consider is whether the proper statutes were followed in the formulation and approval of the mutualization plan. As contemplated by the rehabilitation agreement, all steps in connection with the adoption of the plan were taken pursuant to sections 11525 et seq. of the Insurance Code, which relate to voluntary mutualization of a solvent insurer. Plaintiffs assert that the applicable statutes for mutualization of the new company are sections 1043 et seq., which govern involuntary mutualization of an insolvent insurer. The essential differences in procedure are that under the sections relating to voluntary mutualization of a solvent company the plan is adopted by the directors, subject to approval by the stockholders and the commissioner, and no court proceedings are necessary; whereas under the provisions for involuntary mutualization of a seized insurer the plan is formulated by the commissioner as conservator without consent of the stockholders or directors, and it must be approved by the court. The new company is solvent and nondelinquent, and there is no sound reason why it should be mutualized under the statutes relating to insolvent insurers. The commissioner had power to create the new corporation in order to preserve the business of the seized insurer. Section 1043, which authorizes the commissioner to enter into rehabilitation agreements, contains no express limitation on what may be included in them, and section 1037 provides that the enumeration of the powers of the commissioner shall not be construed as a limitation upon him or upon his right to do such other acts as he may deem necessary in connection with the handling of the affairs of an insolvent company. * When salvaging the business of a seized insurer the greatest possible protection should be given to creditors and other interested parties, and in the present instance the commissioner evidently concluded that this objective could best be accomplished through the formation of a new company divorced as far as possible from the control of those who were in charge of the old company when it experienced financial difficulties. The new company is a separate and distinct entity, and when the business was transferred it ceased to be the business of the old company and became the business of the new company. In Garrison v. Pacific Mut. L. Ins. Co., 83 Cal.App.2d 1, 9-10 [187 P.2d 893], it was held that the identity of the new company “is utterly distinct from that of old company, ’' that it ‘ ‘ cannot be fairly said that it is a continuance of old company,” and that the new company “is a separate entity that came into being after old company’s insolvency was declared. ...” The fact that the new company may for some purposes have served as an agent or instrumentality of the commissioner does not destroy its identity as a separate company. Accordingly, as contemplated by the rehabilitation agreement, the applicable statutory provisions for mutualization of the new company are those found in section 11525 et seq., which govern voluntary mutualization of solvent nondelinquent insurers. Plaintiffs nevertheless contend that it was improper to follow the procedure set up in the code for mutualization of a solvent company because, they assert, the commissioner in doing so was forced to act in a dual capacity with conflicting interests. Section 11526, which prescribes the method to be followed in mutualizing a solvent insurer, provides that the plan shall be: “. . . (b) Approved by the vote of the holders of at least a majority of the outstanding shares at a special meeting of shareholders called for that purpose, or by the written consent of such shareholders, (c) Submitted to the commissioner and approved by him in writing.” Commissioner Carpenter as the sole holder of the stock of the new company consented in advance to the plan of mutualization, and Commissioner Downey approved it after holding a hearing to ascertain if the plan would be fair and equitable in its operation. Plaintiffs claim that the responsibilities of the commissioner under subdivision (c) are different from and may conflict with his duties under subdivision (b). Even if there might be such a conflict under some circumstances, it would not follow that it was improper to adopt the statutory procedure set forth for the mutualization of a solvent company. The legislative scheme for the mutualization of solvent nondelinquent insurers would in some instances be defeated if the commissioner were disqualified for the reasons urged by plaintiffs, and it must be assumed that the Legislature realized that the commissioner might be required to pass upon the fairness of a plan in a case where he, acting as conservator, had previously consented to mutualization on behalf of the stockholders. In numerous cases where the action of an administrative officer was necessary to prevent defeat of the statutory scheme, his participation has been upheld, although the grounds for disqualification were much more serious than those raised here. (For example, see Thompson v. City of Long Beach, 41 Cal.2d 235, 243-244 [259 P.2d 649]; Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 344, 365-366 [139 P.2d 908]; Federal Const. Co. v. Curd, 179 Cal. 489, 493-495 [177 P. 469, 2 A.L.R. 1202]; Scannell v. Wolff, 86 Cal.App.2d 489, 492-493 [195 P.2d 536]; Nider v. Homan, 32 Cal.App.2d 11, 13 [89 P.2d 136].) The fact that Commissioner Carpenter gave advance consent on behalf of the stockholders to a plan of mutualization did not disqualify Commissioner Downey from passing upon the fairness of the mutualization plan which was promulgated. An alternative reason for rejecting plaintiffs’ claim that it was improper to follow the procedure set forth in sections 11525 et seq. in the mutualization of the new company is that the validity of the rehabilitation agreement, which provided for voluntary mutualization, is now res judicata. A copy of the agreement was attached to and made a part of the petition which sought approval of the agreement. The petition was filed pursuant to section 1043, which provides that rehabilitation agreements entered into by the commissioner are subject to the approval of the superior court. The validity of all the provisions of the agreement was put in issue by the petition and determined by the court. The order of December 4, 1936, approved the agreement “and each and all of the terms and conditions thereof, and the plan therein embodied, ’ ’ reciting that all interested parties had been given a reasonable opportunity to be heard on “the question of fairness, justice, equity, feasibility, and propriety” of the agreement and the plan. All parties were forever enjoined from making any complaint with respect to the agreement or any provisions thereof. This order was affirmed in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307 [74 P.2d 761]. (See also Carpenter v. Pacific Mut. L. Ins Co., 13 Cal.2d 306, 314-316 [89 P.2d 637]; Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 344, 351-352 [139 P.2d 908].) While different causes of action were involved in the present proceeding and the one leading to the order approving the rehabilitation agreement, the parties were the same, and it is settled that even though the causes of action be different, the prior determination of an issue is conclusive in a subsequent suit between the same parties as to that issue and every matter which might have been urged to sustain or defeat its determination. (Shore v. Shore, 43 Cal.2d 677, 682 [277 P.2d 400]; Krier v. Krier, 28 Cal.2d 841, 843 [172 P.2d 681]; De Hart v. Allen, 26 Cal.2d 829, 831 [161 P.2d 453]; Estate of Keet, 15 Cal.2d 328, 334 [100 P.2d 1045]; Sutphin v. Speik, 15 Cal.2d 195, 201 et seq. [99 P.2d 652, 101 P.2d 497]; Caminetti v. Board of Trustees, 1 Cal.2d 354, 356 [34 P.2d 1021]; Price v. Sixth District Agri. Assn., 201 Cal. 502, 510 et seq. [258 P. 387].) Inconsistent language found in certain opinions of the District Court of Appeal must be disapproved. (Green v. Green, 66 Cal.App.2d 50, 59 [151 P.2d 679]; Babcock v. Babcock, 63 Cal.App.2d 94, 97 [146 P.2d 279]; Bank of America v. McLaughlin, 22 Cal.App.2d 411, 417 [71 P.2d 291, 72 P.2d 554].) The basic issue before the court when the agreement was submitted for approval was the propriety of each of its provisions, and the determination of that issue is conclusive as to every matter which might have been urged to sustain or defeat its determination. It is contended that the order approving the rehabilitation agreement may be collaterally attacked upon the theory that the mutualization procedure provided for in the agreement followed the wrong* statutory provisions and that therefore the order is void. For the purpose of passing upon this question we shall assume, contrary to what we have just decided, that the wrong statutes were used in the mutualization of the new company. It is the general rule that a final judgment or order is res judicata even though contrary to statute where the court has jurisdiction in the fundamental sense, i. e., of the subject matter and the parties. In the consideration of problems arising in this field it should be kept in mind that there is a difference between lack of jurisdiction in the fundamental sense, which is ordinarily essential for collateral attack, and the broader meaning of the term “lack of jurisdiction” when used in determining the availability of prohibition or certiorari to review an order or judgment. Some cases involving collateral attack have unfortunately failed to recognize this distinction. (For discussion of the distinction, see Abelleira v. District Court of Appeal, 17 Cal.2d 280, 287-291 [109 P.2d 942, 132 A.L.R. 715]; Tide Water Assoc. Oil Co. v. Superior Court, 43 Cal.2d 815, 821 [279 P.2d 35].) In some instances the requirements of a statute may relate to subject matter jurisdiction, and disregard of the statute may render a judgment void and subject to collateral attack. (See, for example, Grannis V. Superior Court, 146 Cal. 245, 254-255 [79 P. 891, 106 Am.St.Rep. 23]; cf. Rogers v. Cady, 104 Cal. 288, 291-292 [38 P. 81, 43 Am.St.Rep. 100] [constitutional provision].) In the present ease, however, it is clear that the court which approved the rehabilitation agreement had jurisdiction of the subject matter and the parties, and, unless the case comes within some exception, collateral attack cannot be based on the ground that the court authorized mutualization to proceed under the wrong statute. Closely analogous to the problem involved here are cases holding that probate decrees are res judicata, although they direct distribution pursuant to wills which are contrary to statute, since the court sitting in probate, like a court passing upon a rehabilitation agreement, is under a duty to determine the validity of the instrument before it. (Estate of Loring, 29 Cal.2d 423, 427 et seq. [175 P.2d 524]; Crew v. Pratt, 119 Cal. 139, 147 et seq. [51 P. 38]; Estate of Gardiner, 45 Cal.App.2d 559, 562 et seq. [114 P.2d 643]; McGavin v. San Francisco P.O.A. Soc., 34 Cal.App. 168, 170 et seq. [167 P. 182].) Similarly analogous are cases holding that an order settling a trustee’s account is res judicata as to the propriety of the purchase of investment certificates which were issued contrary to statute. (Willson v. Security-First Nat. Bank, 21 Cal.2d 705 [134 P.2d 800]; Estate of Crane, 73 Cal.App.2d 93 [165 P.2d 940]; cf. Fergodo v. Donohue, 40 Cal.App. 670 [181 P. 819].) Estate of Rowe, 66 Cal.App.2d 594 [152 P.2d 765], which is contrary to the eases cited above, is disapproved. The principle of res judicata has also been applied as a basis for holding that judgments enforcing contracts are a bar to the defense of illegality in subsequent litigation. (Andrews v. Reidy, 7 Cal.2d 366 [60 P.2d 832]; De Hart v. Allen, 49 Cal.App.2d 639, 646 [122 P.2d 273], approved in De Hart v. Allen, 26 Cal.2d 829, 830-831 [161 P.2d 453]; cf. Short v. Short, 106 Cal.App. 210, 215 [288 P. 1111].) Another instance in which the doctrine was applied is San Diego Trust & Sav. Bank v. Young, 19 Cal.2d 98 [119 P.2d 133], where the prior judgment reduced the time for redemption contrary to statute. The San Diego case impliedly overruled Anthony v. Janssen, 183 Cal. 329 [191 P. 538], and Tonningsen v. Odd Fellows' Cemetery Assn., 60 Cal.App. 568 [213 P. 710], It has also been held that a judgment, which was contrary to the Constitution because it was based upon a statute later held invalid, was nevertheless res judicata in a subsequent suit, the court stating that objections to the statute should have been raised in the prior proceeding. (Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376, 378 [60 S.Ct. 317, 319-320, 84 L.Ed. 329].) The Chicot case is quoted with approval in Mueller v. Elba Oil Co., 21 Cal.2d 188, 205-206 [130 P.2d 961], and was cited in Rescue Army v. Municipal Court, 28 Cal.2d 460, 463-464, [171 P.2d 8]. There are some recognized exceptions to the general rule that collateral attack will not be allowed where there is fundamental jurisdiction even though the judgment is contrary to statute. For example, a judgment may be collaterally attacked where unusual circumstances were present which prevented an earlier and more appropriate attack. (See 1 Witkin, California Procedure (1954), 411-412.) In Burtnett v. King, 33 Cal.2d 805 [205 P.2d 657, 12 A.L.R.2d 333], collateral attack was permitted against a default divorce decree which awarded all the community property to the plaintiff in the absence of a prayer therefor in the complaint, contrary to the provision in section 580 of the Code of Civil Procedure that relief in a default case cannot exceed that demanded in the complaint. The defendant in the divorce action had no notice or warning that the property would be affected by a default judgment, and the opinion points out that the decision would sanction a trap if it held that his property rights had been disposed of since he would properly have assumed from the complaint that his rights to the property.were not to be litigated at that time. (33 Cal.2d at p. 811.) The present case is readily distinguishable, since there was nothing to prevent the questions which are raised with regard to the validity of the rehabilitation agreement from being litigated in the proceedings which led to the order approving the agreement. Proceedings to prohibit or annul judgments of contempt for violation of injunctions and other equitable orders made contrary to statute may constitute another exception to the general rule. (Harlan v. Superior Court, 94 Cal.App.2d 902, 904-905 [211 P.2d 942]; Hunter v. Superior Court, 38 Cal.App.2d 100 [97 P.2d 492]; cf. Fortenbury v. Superior Court, 16 Cal.2d 405, 407-408 [106 P.2d 411] [violation of Constitution].) The decisions do not use the term, but the attack in such eases might be considered to be collateral, and the proceedings apparently fall in a special category because they are penal in nature. Prom the foregoing discussion it follows that, even if we assume that the rehabilitation agreement and the order approving it authorized mutualization of the new company under the wrong statutes, the order is nevertheless res judicata. The next problem is whether there was sufficient compliance with the statutory requirements for voluntary mutualization of solvent insurers. Sections 11525 et seq. provide that the plan of mutualization shall be adopted by the directors and approved by the shareholders, the commissioner and the policyholders. Plaintiffs contend that the actions taken to meet these requirements were in certain respects defective and unauthorized. The approval of the shareholders to the plan of mutualization was given in the rehabilitation agreement by Commissioner Carpenter as sole stockholder of the new company. As we have seen, the agreement provided for the formulation of a plan of mutualization by the price determination committee, and plaintiffs claim that the commissioner, acting for the shareholders of the new company, was without authority to give advance consent to such a plan. In the absence of statutory provision to the contrary, the stockholders of a solvent company can contract to consent to a future plan of voluntary mutualization (cf. Market St. Ry. Co. v. Hellman, 109 Cal. 571, 586-587 [42 P. 225]), and no sound reason appears why such an agreement is improper merely because the shares are held by the commissioner as conservator of a seized insurer. The commissioner apparently concluded that a plan for mutualization which could not be destroyed by future action or nonaction of the shareholders was necessary as a means of inducing both former and prospective policyholders to deal with the new company and thus permit its continued existence. The powers vested in the commissioner by sections 1037 and 1043 are sufficiently broad to authorize him, as sole stockholder, to give advance consent to the plan of mutualization. Moreover, the validity of all portions of the rehabilitation agreement, including the provision for advance consent, is res judicata. The directors adopted the mutualization plan, but it is claimed that the action taken was ineffective because they assertedly did not obtain sufficient information to enable them to properly evaluate the desirability of the plan. They had the benefit of the report of the price determination committee and the opinions of experts, including actuaries and officers of the company, and it seems obvious that, as a practical matter, directors must ordinarily act on the advice of corporate officers and other persons who have expert knowledge. (See Ballantine & Sterling, California Corporation Laws (1949), p. 110.) After the directors adopted the plan as formulated by the price determination committee, Commissioner Downey held a hearing which lasted nearly three weeks. Oral and documentary evidence was received, and all interested parties had an opportunity to participate. The commissioner approved the plan after finding that the rights and interests of the new company, its policyholders and shareholders were protected and that the plan would be fair and equitable in its operation. Plaintiffs contend that the findings are not supported by the evidence and that there was a lack of procedural due process at the hearing. In passing upon these contentions, we shall first give consideration to plaintiffs’ claim that the trial court, in reviewing the action of the commissioner, should have held a trial de novo. The approval of the mutualization plan by the commissioner did not involve any deprivation of property rights or vested rights; it was in essence a permit or license authorizing the neAV company to purchase its own stock. Under these circumstances the function of the superior court was to determine whether the action taken by the commissioner was arbitrary or constituted an abuse of discretion, and in upholding the action of the commissioner, it properly refused to conduct a trial de novo. (Southern Calif. Jockey Club, Inc. v. California etc. Racing Board, 36 Cal.2d 167, 174-175 [223 P.2d 1]; McDonough v. Goodcell, 13 Cal.2d 741, 746-749 [91 P.2d 1035, 123 A.L.R. 1205]; see Thomas v. California Emp. Stab. Com., 39 Cal.2d 501, 504 [247 P.2d 561]; Andrews v. State Board of Registration, 123 Cal.App.2d 685, 694-695 [267 P.2d 352].) There is no merit in plaintiffs’ claim that the record before the commissioner does not support his approval of the plan. The price determination committee consisted of men highly skilled in matters of insurance company valuation, and they were assisted in the formulation of the plan by Joseph Christman, associate actuary of the Metropolitan Life Insurance Company of New York, two Fellows of the Society of Actuaries, and numerous trained supervisory and clerical employees. Experts testified that the price fixed for the purchase of the stock was fair, that the provisions relating to the time and manner of payment were necessary for the safety and stability of the new company, that the proposed plan gave due regard and protection to the rights of all persons interested in the new company and would be fair in its operation. Plaintiffs’ contention that there was a denial of procedural due process is based on their claim that the commissioner accepted the conclusions of the price determination committee without having before him all the facts on which those conclusions were based and that the committee itself relied on statistics furnished by its actuary without reviewing all the supporting data. Two members of the price determination committee testified in detail as to how the committee arrived at its determinations, and the actuary testified regarding his report which was introduced in evidence. Thus two of the four members of the committee who were responsible for its report, as well as the actuary who procured most of the data relied on by the committee, were available for cross-examination. These men, as we have seen, were experts in the insurance and investment fields, and the fact that the other members of the committee and the persons who assisted the actuary were not called as witnesses is immaterial, at least in the absence of a showing that plaintiffs sought to obtain their testimony. (City of Pasadena v. City of Alhambra, 33 Cal.2d 908, 919 [207 P.2d 17].) At the hearing an offer was made to furnish the documents and testimony necessary to explain every detail of the committee’s work. No claim is made that any request for data was refused, and plaintiffs have no valid basis for complaint if they failed to make such a request. The judgment is affirmed. Shenk, J., Spence, J., and Wood (Fred B.), J. pro tem., concurred. Six successive commissioners, Messrs. Carpenter, Goodcell, Caminetti, Garrison, Downey and Maloney, have passed upon matters relating to the insolvency of the old company. Section 11525 of the Insurance Code provides: “A solvent domestic incorporated insurer having a paid-in capital represented by outstanding shares of capital stock and issuing, on a reserve basis, nonassessable policies of life insurance or of both life and disability insurance, may convert itself into an incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.” Sections 11526-11533 contain detailed provisions relating to procedure for adoption and execution of the plan of mutualization. Section 1043 of the Insurance Code provides in part: “In any proceeding under this .article, the commissioner, as conservator or as liquidator, may, subject to the approval of said court, and subject to such liens as may be necessary mutualize or reinsure the business of such person, or enter into rehabilitation agreements." The words “such person" include an insolvent insurer as referred to in sections 1010 et seq. of the Insurance Code dealing with insolvency and delinquency. Section 1045 provides: “If at any time after the issuance of an order under section 1011 ... it shall appear to the commissioner that the purposes of section 1011 can be best attained by the mutualization of such life insurer, the commissioner may formulate a plan for the mutualization of such insurer." Section 1046 et seq. set forth the necessary procedural steps. Section 1037 of the Insurance Code provides in part: “The enumeration, in this article, of the duties, powers and authority of the commissioner in proceedings under this article shall not be construed as a limitation upon the commissioner, nor shall it exclude in any manner his right to perform and to do such other acts not herein specifically enumerated, or otherwise provided for, which he may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings. ’ ’ Assigned by Chairman of Judicial Council.
TRAYNOR, J. I dissent. Although the Legislature has provided detailed statutory provisions for the mutualization of the business of an insolvent insurer (Ins. Code, § 1045 et seq.), the majority opinion holds in effect that these provisions may be completely nullified by the execution of a rehabilitation agreement under section 1043 of the Insurance Code, if such agreement provides for the voluntary mutualization of a new insurer created for the purpose of carrying on the business of the old. The commissioner has broad powers in executing rehabilitation agreements, and it may be both proper and desirable for him to make use of a new corporate entity to salvage the business of an insolvent insurer. It does not follow, however, that if the end product of a rehabilitation agreement is to be the mutualization of the business of an insolvent insurer, the statutory provisions with respect to such mutualization may be ignored. To hold that they may be not only renders the provisions with respect to involuntary mutualization superfluous but deprives the interested parties of their right to the protection of court scrutiny of the plan of mutualization. (See Ins. Code, § 1051.) The importance to the shareholders of the old company of having the court independently pass upon the fairness of the plan of mutualization is demonstrated by the facts of this case. The trial court clearly indicated that had the decision been his, the plan would not have been approved; if the shareholders were entitled to his independent judgment, their rights have been prejudiced by his failure to exercise it. This case is not one involving only the mutualization of a solvent insurer, since if it were, the shareholders would have the power to protect their interests by withholding their consent to the plan of mutualization. (Ins. Code, § 11526, subd. (b).) In fact, the business of an insolvent insurer is being mutualized pursuant to a rehabilitation agreement that has deprived the shareholders of the old company of the veto power they otherwise would have, and under the holding of the majority opinion they must look to the commissioner rather than to the court for the protection of their interests. (Ins. Code, §§11526, subd. (c), 11527.) Although the Legislature recognized that approval by the commissioner is sufficient when all of the interested parties are in a position to protect their own interests, it also provided that court approval is essential when they are not. (Ins. Code, § 1051.) Despite the force of the foregoing considerations, if in fact the trial court in 1936 approved a rehabilitation agreement that not only provided for mutualization contrary to the statutory provisions but also restricted the power of that court to control the ultimate disposition of the assets in the hands of the commissioner as conservator or liquidator, I would reluctantly concur in the judgment on the ground that the validity of the agreement and order is res judicata. In my opinion, however, the court in 1936 did not exhaust its power to control the disposition of assets in the hands of the commissioner as conservator or liquidator (see Ins. Code, § 1037, subd. (d)) and that therefore the commissioner cannot carry out the terms of the mutualization agreement until as liquidator he has secured the permission of the court in the insolvency proceedings. Accordingly, until he secures that approval he cannot approve the plan presented by the price determination committee as “fair and equitable in its operation” (Ins. Code, § 11527), for it cannot be known whether it will become operative at all until it is approved by the court in the insolvency proceedings. Subdivision (d) of section 1037 provides “that no transaction involving real or personal property shall be made where the market value of the property involved exceeds the sum of one thousand dollars without first obtaining permission of . . . [the court in the insolvency proceedings], and then only in accordance with such terms as said court may prescribe.” The stock of the new company subject to the plan of mutualization is personal property worth more than $1,000, and that plan is clearly a transaction involving such property. This section has not been complied with unless the court in approving the rehabilitation agreement granted permission to the commissioner to dispose of the stock under the terms of any mutualization agreement that might be proposed by the price determination committee 10 years or more in the future. The order approving the rehabilitation agreement is ambiguous. Paragraph 15 provides: “That the Insurance Commissioner of the State of California as Conservator of respondent corporation, or, if he should hereafter be appointed Liquidator of said corporation, as such Liquidator, be and is hereby authorized, without further order of this court, fully and faithfully to perform, carry out, and discharge each and all of the obligations, terms, conditions, and covenants on his part required to be performed under the terms of said Rehabilitation and Reinsurance Agreement; and, either with or without further order of this court, to make, do, execute, and deliver any and all such further or other acts, deeds, and things by him deemed reasonably necessary or desirable to effectuate the intents and purposes of said Rehabilitation and Reinsurance Agreement, and to assure and to confirm to Pacific Mutual Life Insurance Company, or its successors, all and singular the properties hereinbefore directed to be conveyed and released to said corporation, and to enable said corporation from and after the date hereof to conduct and continue to conduct a life and disability insurance business, as contemplated by said agreement. ’ ’ Paragraph 16 provides: “That this court, without relinquishing by these specific provisions any jurisdiction by it retained as a matter of law, do, and it does hereby, specifically retain and reserve jurisdiction of the within proceedings (for the purpose of authorizing or approving any act of the Insurance Commissioner of the State of California done, or to be done pursuant to or in accordance with this order, and) for the purpose of making or entering, upon application of the Insurance Commissioner of the State of California or of Pacific Mutual Life Insurance Company, any order, decree, judgment, or ruling required, permitted, or requested to be done, made, or entered in connection with or pursuant to the terms of said agreement, or for the effectuation of the purposes thereof.” Since the contemplated plan of mutualization was not to be formulated for at least 10 years, the court could obviously not approve that plan at the time it entered its order approving the rehabilitation agreement. Moreover, it did not expressly approve in advance the carrying out of any mutualization plan that might be presented by the price determination committee. Although standing alone the language permitting the commissioner to carry out the rehabilitation agreement “without further order of this court” might be interpreted as exhausting the court’s jurisdiction over mutualization, it may not reasonably be so interpreted in the light of the express reservation of jurisdiction “for the purpose of making . . . any order . . . required ... in connection with or pursuant to the terms of said agreement.” It is significant that in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 322 [74 P.2d 761], this court was careful to note: ‘ ‘ The plan also provides that the commissioner, either as conservator or liquidator, shall continue to hold all the stock of the new company as a protection to all old company policyholders. Ultimate mutualization, in the event the policyholders so elect is also provided for. The trial court reserves jurisdiction over the entire proceeding.” Paragraphs 15 and 16 may be reconciled by interpreting them as authorizing the commissioner without further order of the court to carry out the rehabilitation agreement to the extent that its provisions represented a completed plan for rehabilitation and reinsurance, and at the same time reserving to the court jurisdiction to approve or disapprove plans to be developed in the future for mutualization or other disposal of the stock in the hands of the commissioner. Such an interpretation of the order subserves the primary purpose of section 1037, subdivision (d), and the statutes governing involuntary mutualization by securing to all interested parties their right to court scrutiny of all steps in the proceedings that substantially affect their rights, and since the order is reasonably susceptible of that interpretation it should be adopted. Although the validity of the rehabilitation agreement and the order approving it are res judicata, the interpretation of the order is not res judicata, and it should not be interpreted to sanction further departures from the statutory provisions than res judicata compels. (See Watson v. Lawson, 166 Cal. 235, 242 [135 P. 961]; Treece v. Treece, 125 Cal.App. 726, 728 [14 P.2d 95].) The judgment should be reversed. Schauer, J., concurred.
CARTER, J. I dissent. The majority opinion is a masterpiece of legal legerdemain. It approves a transaction whereby the policyholders of old company are deprived of between $18,000,000 and $24,000,000 to which they are entitled under any concept of law and justice. It also deprives the stockholders of old company of whatever value their stock in old company may be worth in view of the fact that the assets of old company which were transferred to new company at the time of its creation were valued in excess of over $200,000,000. The majority concedes that new company was created in an insolvency proceeding and has always been used in said proceeding as an agency of the insurance commissioner for the purpose of rehabilitating an insolvent insurance company, and that such proceeding is still pending because rehabilitation has not been completed. It nevertheless holds that “the new company is solvent and nondeliquent, ’ ’ even though it owes and is obligated to pay the policyholders of old company between $18,000,000 and $24,000,000 which it admittedly is not financially able to pay. In approving this transaction the majority disregards express statutory provisions of this state and deprives the stockholders and policyholders of old company of their right to a judicial review of the administrative proceeding whereby they were deprived of their property, thus denying them due process of law to which they are entitled under both state and federal constitutional provisions. The Undeniable Pacts On July 22, 1936, some 3,000 stockholders and 300,000 policyholders of The Pacific Mutual Life Insurance Company of California, hereinafter known as old company, were stunned by the news that the insurance commissioner had taken charge of the company, alleging it to be insolvent. This development was all the more shocking because of its suddenness and also because only a short time before, the regular, verified, annual statement of the company showed it to be in sound financial condition, as had similar previous statements from year to year consistently shown throughout its lifetime of over 68 years. The business and assets of old company were then taken over by the insurance commissioner of this state pursuant to the provisions of sections 1011 and 1013 of the Insurance Code. Thereafter, The Pacific Mutual Life Insurance Company was organized as part‘of a plan of rehabilitation of old company by the commissioner who purchased its entire capital stock with assets of old company. Pursuant to section 1043 of the Insurance Code, a 1 ‘ Rehabilitation and Reinsurance” agreement was entered into between the new company and the then insurance commissioner, as conservator of old company. The rehabilitation plan provided for the organization of a new corporation with a capital of $1,000,000 which consisted of 10,000 shares at a par value of $100 each. The commissioner was to purchase all the outstanding stock of the new company with $3,000,000 in cash belonging to the old company (which gave new company an initial surplus of $2,000,000). The commissioner was then to transfer all the other assets of old company (with the exception of the stock of new company which, of course, was owned by old company) to new company, and new company was to assume all policies and obligations of the old company to the extent provided for in the plan. The plan provided that new company would assume all the obligations of the old company under existing policies with the exception of the non-can policies, which obligations were assumed on a reduced benefit schedule at the old premium rates. It was agreed that further benefits would be restored out of certain designated income of new company. All of new company’s stock was purchased with $3,000,000 out of old company’s funds. In addition, all the other assets of old company (over $200,000,000 assets in addition to going agency organization and concern, good will, etc., “worth several millions of dollars” (Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 325 [74 P.2d 761]) were transferred to new company. Therefore, new company owes its creation and existence to old company. The confiscatory nature of this entire proceeding, including the present majority holding, is at once apparent when we see that old company’s stockholders will ultimately only receive $3,000,000 for their stock which, when old company was taken over, was supported by that amount in cash phis over $200,000,000 in various assets plus the value of good will, going business organization, etc., worth several millions of dollars! The agreement thus provided for a transfer to new company of the assets of old company (with certain exceptions not relevant here) and the assumption by new company of the obligations of old company, excluding certain noncancellable policies. With regard to these policies, known as the “non-can” policies, new company assumed a limited obligation and agreed to set up a special fund for the restoration of benefits thereunder. This obligation is still unpaid and outstanding. The capital stock of new company was to be held by the commissioner, as conservator, or liquidator, for the benefit of the creditors, policyholders, and stockholders of old company. On December 4, 1936, the agreement was approved by the trial court. In Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 332, 334 [74 P.2d 761 (affirmed Neblett v. Carpenter, 305 U.S. 297 [59 S.Ct. 170, 83 L.Ed. 182]), it was held that the organization of new company, as part of a plan to rehabilitate the business of old company was proper. It is pointed out (p. 322) that “Ultimate mutualization, in the event the policyholders so elect is also provided for. ’ ’ On February 2, 1937, an order was made providing for the liquidation of the old company and appointing the insurance commissioner as liquidator. This order was upheld on appeal (Carpenter v. Pacific Mut. L. Ins. Co., 13 Cal.2d 306 [89 P.2d 637]), although old company has never been dissolved. On April 4, 1938, the commissioner, as liquidator, transferred title to the capital stock of new company to voting trustees. This transfer was upheld on appeal (Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 344 [139 P.2d 908]). (Other aspects of this case have been decided by this court in Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 77 [136 P.2d 779]; Caminetti v. Pacific Mut. L. Ins. Co., 22 Cal.2d 386 [139 P.2d 930]; Caminetti v. Pacific Mut. L. Ins. Co., 23 Cal.2d 94 [142 P.2d 741]; Neblett v. Pacific Mut. L. Ins. Co., 22 Cal.2d 393 [139 P.2d 934]; Carpenter v. Pacific Mut. L. Ins. Co., 14 Cal.2d 704 [96 P.2d 796]; and by the appellate courts in Sanborn v. Pacific Mut. L. Ins. Co., 42 Cal.App.2d 99 [108 P.2d 458]; Garrison v. Pacific Mut. L. Ins. Co., 83 Cal.App.2d 1 [187 P.2d 893].) New company now seeks to acquire its stock (see later discussion) through the device of mutualization under section 20(a) of the rehabilitation agreement. The mutualization plan provides that the price to be paid for new company’s stock is $3,000,000, with simple interest. If non-can benefits are fully restored prior to January 1, 1973, the purchase price is to be increased by an additional sum of $250,000 for each full year by which the date of completion of restoration precedes December, 1973. The purchase price is not absolutely payable, but is to be paid only “when and if” all the following conditions are met: (1) Non-can restoration is completed; (2) the funds in a special surplus fund (to be created pursuant to the plan) plus the capital and surplus of new company, equal or exceed the purchase price of the stock; (3) the financial condition of the new company is such that, after paying for and cancelling the stock, it would still have admitted assets in excess of all its liabilities amounting to the sum of 4 per cent of all admitted assets plus 25 per cent of the premiums collected during the preceding calendar year on all group insurance written on a one-year term basis and on all accident and health insurance. This résumé shows that the new company was brought into existence as a creature of the state to rehabilitate old company and to carry on its business for that purpose. It also shows the grievous injustice being* perpetuated by the. majority in approving the plan of mutualization used here—that of voluntary mutualization of an insolvent corporation. This type of voluntary mutualization is as voluntary as a confession given under force, duress, and threats of bodily injury. Non-can benefits have not been fully restored; even under the mutualization plan it is contemplated they will not be fully restored (if partial benefit payments can be considered “full” restoration) until 1973. Until such time as they are restored, new company cannot be considered as a solvent concern since it still owes a debt to the policyholders and stockholders of old company, which it admittedly cannot now pay. The amount of this debt is conceded to be between $18,000,000 and $24,000,000. How can it then be said, with any degree of honesty whatsoever, that new company is solvent and may avail itself of the statutory provisions relating to mutualization? I defy anyone to give an affirmative answer to this question. Present Proceeding Purporting to act under paragraph 20(a) of the rehabilitation and reinsurance agreement, a plan of mutualization was formulated by the committee and, on September 22, 1950, the insurance commissioner found that the plan protected the rights and interests of new company, its policyholders and shareholders, and that he was satisfied that the plan would be fair and equitable in its operation. Paragraph 20(a) of the rehabilitation and reinsurance agreement provides: "Mutualization and Disposition of Stock of New Company "(2) Neither the Conservator, nor, if one be appointed, the Liquidator, of the Old Company, shall dispose of any of the stock of the New Company except as follows: "(a) At any time between July 1, 1946 and January 1, 1948, and thereafter so long as the Conservator or a Liquidator of the Old Company may continue to hold any or all of said stock, ten percent (10%) of the holders of participating policies of life insurance entitled to vote at a policy holders’ election on a proposal fqr voluntary mutualization of the New Company, whether those re-insured hereunder or those issued by the New Company (each policy holder for this purpose being regarded as one person regardless of the number of policies owned or amount of insurance held) may request the New Company to create an Appointing Committee as hereinafter provided to exercise the duties and functions hereinafter specified in respect of a proposed voluntary mutualization of the New Company, in accordance with the laws of the State of California in effect at the time of said request, or, if said laws then so permit, of any one or more departments thereof. Such request shall specify the department or departments of the New Company desired to be mutualized. "Upon the receipt of such request the New Company shall create an Appointing Committee consisting of the then President of the Association of Life Insurance Presidents, the President of Leland Stanford Jr. University, and the Provost of the University of California at Los Angeles, or persons occupying similar positions if their or any of their titles shall have been changed. In the event any one or more of such persons shall refuse or be unable to act, the remaining member or members shall fill the vacancy or vacancies thereby created by their appointment in writing of another person or persons of similar position and standing. If all of said persons refuse or are unable to act, the Court or any Judge thereof shall, on the application of the Commissioner, designate an Appointing Committee consisting of three (3) persons of similar position and standing. Said Appointing Committee, acting through not less than a majority of its members, shall designate a Price Determination Committee of not less than three and not more than five (5) persons skilled in matters of insurance company valuation, which committee, acting through not less than a majority thereof, shall determine whether in their opinion the proposed voluntary mutualization of the New Company, or of the department or departments thereof specified in said request can then be practicably accomplished having due regard to the interests of all persons interested in the New Company If it can be determined that such mutualization is not then practicable no further steps shall be taken in connection with a possible mutualization of the New Company under the provisions of this subparagraph until at least six months after the date of such determination. If in the opinion of a majority of the members of the committee such mutualization is then practicable, the committee shall determine the proper price to be paid upon such mutualization and appropriate terms of payments thereof; said determination shall not be made, however, prior to January 1, 1947. “If, at the date of the appointment of such committee the New Company shall have in force Participating Life Insurance written, subsequent to the effective date of this agreement in an amount in excess of its Non-Participating Life Insurance written during the same period, one-half (%) of such excess shall, for the purpose of fixing the proper price to be paid (but for no other purpose) be deemed to be, and shall be valued as, Non-Participating Life Insurance. If at the time of such appointment, there shall have been transferred from the Participating Department in accordance with the provisions of sub-paragraph (d) of paragraph 6 hereof, less than ten percent (10%) of the then accrued earnings described therein, or if there shall have been transferred to the Participating Department any working capital pursuant to the provisions of subparagraph (c) of said paragraph 6, any unpaid balance thereof shall, for the purpose of fixing the proper price to be paid (but for no other purpose) be deemed to be a debt then due and matured. Said Committee shall in its report to the New Company include a plan of mutualization of the New Company, or of the department or departments thereof specified in said request of the policy holders. Such plan shall specify, in addition to any other relevant matters, the price to be paid, the terms of payment, and the persons by whom and the manner in which the right to vote the stock of the New Company is to be exercised pending complete payment of the purchase price. In this connection the said Committee, if it deem it advisable, may provide in the plan for the creation of a voting trust, designate the initial trustees, and make provision for the appointment of their successors. Unless the benefits under Non-Can policies have theretofore been fully restored and claims against the Liquidator fully paid, such plan shall further provide that such mutualization shall not affect the provisions of paragraph 17 or of paragraph 14 hereof or the right of holders of Non-Can Policies to the restoration of benefits from the sources and in the manner therein provided. “The New Company agrees that within sixty (60) days after the making of such report (unless said report shall be to the effect that mutualization is not then practicable) it will mail copies thereof to all of its policy holders entitled to vote upon such plan or plans of mutualization if submitted according to law. If within one hundred twenty (120) days after the mailing of such notice, ten per cent. (10%) of the policy holders entitled to vote upon any such plan or plans (each policy holder being for this purpose regarded as one person regardless of the number of policies owned or amount of insurance held) shall request in writing the submission thereof, the New Company will promptly submit the same in accordance with the laws of the State of California then in effect. The Conservator for himself and for any successors in the ownership of said stock claiming under him in any manner other than through a sale of said stock pursuant to the provisions of subparagraph (d) hereof agrees to consent and hereby consents as the holder and owner of the stock of the New Company to such plan of mutualization. In the event said mutualization plan is adopted, the Conservator, or a liquidator as aforesaid, shall dispose of such stock in accordance with such plan. The expenses of the foregoing proceedings including costs, fees and expenses of the Price Determination Committee, shall be borne by the New Company, and unless the proposed plan of mutualization is consummated, shall be charged to the Participating Department thereof. “In the event the Price Determination Committee has been appointed as herein provided prior to January 1, 1948, said Committee shall have the power to extend the time within which mutualization may be effected hereunder for such period or periods of time as it may deem necessary for the orderly completion of mutualization proceedings as herein ordered.” (Emphasis added.) Mutualization The Insurance Code provides for mutualization of insurance companies in two different ways. Division 1, part 2, chapter 1, article 14, sections 1010-1062, entitled “Proceedings in Cases of Insolvency and Delinquency” provides in section 1043 for “Mutualization, reinsurance and rehabilitation.” Division 2, part 2, chapter 13, article 1, sections 11525-11533, entitled “Voluntary Mutualization of Incorporated Life and Life and Disability Insurers Having a Capital Stock and Issuing Nonassessable Policies on a Reserve Basis” provides in sections 11525 and 11526 the “Authorization to mutualize” and the “Method of mutualization.” There is no dispute concerning the method actually used in this proceeding. The rehabilitation plan provided for “voluntary” mutualization and the matter proceeded under sections 11525 and 11526. There is complete disagreement as to which method should have been used. Appellants correctly contend that the procedure outlined for “involuntary” mutualization of an “insolvent” insurer is the only proper method. As stated in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 328 [74 P.2d 761], “. . . the proceedings here under review were taken under sections 1010 to 1061 of the Insurance Code, adopted in 1935.” (The other cases heretofore cited have reiterated this statement.) The original seizure of old company was accomplished under section 1011, subdivision (d). Section 1045 provides “Mutualization of life insurer issuing nonassessable policies on a reverse basis: Formation of plan. If at any time after the issuance of an order under section 1011 affecting a life insurer issuing nonassessable policies on a reserve basis and organized with a capital stock evidenced by shares thereof it shall appear to the commissioner that the purposes of section 1011 can be best attained by the mutualization of such life insurer, the commissioner may formulate a plan for the mutualization of such insurer.” (Emphasis added.) All proceedings heretofore had in this litigation have been as provided for in article 14 relating to insolvent and delinquent insurers. The rehabilitation agreement provides for mutualization under the statutory scheme set up for solvent insurers. The majority opinion states “The new company is solvent and nondelinquent, and there is no sound reason why it should be mutualized under the statutes relating to insolvent insurers. . . . Section 1043 [which relates to insolvents], which authorizes the commissioner to enter into rehabilitation agreements, contains no express limitation on what may be included in them, and section 1037 [which also relates to insolvents] provides that the enumeration of the powers of the commissioner shall not be construed as a limitation upon him or upon his right to do such other acts as he may deem necessary in connection with the handling of the affairs of an insolvent company.” (Emphasis added.) Thus the majority opinion admits the procedure relating to insolvents was the one used and impliedly admits that it is the correct procedure. However, in using the code sections relating to insolvents, the author then argues that these sections place no limitation upon the commissioner. Section 1037 provides that the powers and authority of the commissioner in proceedings “under this article” (which relates to insolvents) shall not be construed as a limitation on his right to act or to do that “which he may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings. ’ ’ Then, citing section 1043 (relating again to insolvents), we are told that the new company was properly organized by the commissioner who “evidently concluded” that the protection of creditors and “other interested parties” could best be accomplished through the formation of a new company “divorced as far as possible from the control of those who were in charge of the old company when it experienced financial difficulties.” Then we are told that the new company is a separate and distinct entity. We are told this without any discussion of the character of new company, and with only the unreasoned and unsupported dictum in Garrison v. Pacific Mut. L. Ins. Co., 83 Cal.App.2d 1, 9-10 [187 P.2d 893], as authority therefor. Section 11525 (the procedure followed here) provides for “Authorization to mutualize. A solvent domestic incorporated insurer having a paid-in capital represented by outstanding shares of capital stock an