Full opinion text
STONE, Circuit Judge. This opinion is arranged in main and subheadings, as to subject matter, as follows: I. Statement. II. Contentions. III. Facts. (A) Outline of the Litigation. (B) Committees. (C) Groups. (D) Conduct and Control of Missouri Rate Litigation. (E) The Bribery and Collections of Money therefor. (1) Bribery negotiations. (2) Collections at New York for initial bribe payments. (3) Collections at Hartford for initial bribe payments. (4) Initial payments „ of bribe money. (5) Later payment of bribe money ($330,000.00). (6) Procurement of money for bribe payment of $330,000.00. IV. Discussion and Determination. V. Interest. VI. Motions to Strike Answers. VII. Costs and Expenses of Distribution. I. Statement. May 28, 1930, one hundred and thirty-nine insurance companies filed 137 separate injunction suits against the Superintendent of Insurance and the Attorney General of Missouri to protect a proposed increase of premium rates for fire, windstorm and hail insurance filed by the companies with the Superintendent. After a hearing (on pleadings and affidavits) for temporary injunctions, such orders were entered upon conditions, one of which was that the company might collect the increased rate pendente lite but must deposit the amount of the increase so collected with a custodian of the court to await the ultimate outcome of the suits. Throughout several years during which the suits progressed toward final decrees, such deposits were made aggregating about $10,000,000. May 18, 1935, before final determination .of any of the suits, the then Superintendent (R. Emmett O’Malley) executed an agreement with C. R. Street (“agent” for the companies) whereby the Superintendent was to make an order allowing 80% of the increase and denying 20% thereof and declaring such order retroactive to the filing date of these suits; the impounded funds were to be distributed as provided therein; and the suits were to be dismissed. On May 21, 1935, the Superintendent made the rate order provided in the agreement. On June 22, 1935, the companies presented separate verified motions “for decree”, stating that “the parties to this cause have by mutual agreement settled said cause and controversy involved therein, including the distribution of the funds impounded with the Court under its order and for a dismissal of this cause.” Also, were filed separate stipulations “respecting distribution of the funds now impounded with the Custodian of this Court and to be impounded * * The motions prayed distribution of impounded funds in accordance with the stipulation “and that thereupon this suit shall be dismissed.” After proceedings involving interventions by a few policyholders (later withdrawn by them), separate decrees were entered on February 1, 1936, upon the above motions and stipulations. Each decree provided (1) that “this cause is hereby dismissed”; (2) that the impounded funds be distributed by the custodian to the persons and in the percentages set forth; (3) that jurisdiction be retained for purposes of costs, to effect the distribution, and “over all persons or parties affected by this decree * * * for all purposes of effectuating this decree.” This distribution of impounded funds was to be 80% to the companies (of which 30% was to go to Robert J. Folonie and Charles R. Street, trustees) and 20% to the various policyholders from whom the premiums had been collected. Such payments to the companies and to the trustees were to be made “forthwith” and payments to policyholders were to be made as rapidly as possible. Long after the above decrees had been entered and the above payments made to the companies and trustees and when practically all of the payments to policyholders had been completed, the then and present Superintendent (Ray B. Lucas) filed (May 29, 1939) and presented a motion for citation against each of the companies. Such motion stated that the above agreement of settlement of May 18, 1935, had been procured by bribery of O’Malley by Street and that the decrees of this court upon the above motions and stipulations had been procured by fraud upon 'this court and that such orders “especially respecting the distribution of the fund, were the direct result of the fraud practiced upon this Court.” The prayer was for citations: “To show cause, if any they have, why said decrees of this Court made February 1, 1936, should not be set aside to the extent of the distribution thereof and that 'such decrees be so modified as to assure an ultimate distribution to policyholders of the entire fund unlawfully collected from them, giving credit for the sums paid them, and that they and each of them may be ordered and adjudged to pay to the custodian of this Court the full 80 per cent of all the said impounded fund, together with interest at at least 6 per cent per annum since the funds were taken from such policyholders. “2. For such other and further relief as may seem meet.” Counsel for the companies participated in the presentation of this motion — expressing entire willingness to return to the custodian all funds distributed by him to them and to the trustees — declaring they wished no fruits from the decrees, but reserving their rights to litigate what action this court should take after such return of funds by them. Upon the same day, this court entered two orders in each case. One order required restoration (by July 1, 1939) by the companies to the custodian of all funds distributed by him to the companies and to the trustees under the decrees. The other order required the companies (by June 15, 1939) to show cause “Why all the funds which have been ordered to be returned by it to the Custodian, Wm. T. Kemper, Jr., heretofore appointed in this cause under order of this Court on this date, as well as all other sums of money in the hands of said Custodian, should not be distributed to the proper policyholders and this cause dismissed at the cost of the plaintiff, including the cost of such distribution to such policyholders.” The companies complied with the orders of restitution. They answered the “show cause” orders. The Superintendent filed a motion to strike the answers. July 3, 1939, this court referred to a special master to take testimony and “to analyze and summarize” the testimony. This order provided : “That Mr. Paul Barnett be and he is hereby appointed Special Master to take testimony: (a) as to the conduct of the parties in this and companion cases, leading up to the action of the Court ordering distribution of the impounded fund deposited' by the Insurance Companies with the Court’s Custodian; (b) as to any connection therewith of any agent of the plaintiff authorized to act in connection with this litigation; and (c) as to the knowledge of 'any authoritative officer or officers of the plaintiff as to the acts of any such agent. But it is not to be inferred from this order that it has been determined by the Court that a finding as to each of the three matters of inquiry herein specified is necessarily deemed essential to the ruling of any question which has been or which may be presented for decision.” The purpose of the last just quoted sentence was expressly to hold open all questions of law until the court should have before it the entire fact situation. The master has taken over 1,600 printed pages of testimony and filed such with his “analysis and summary” (in the form of a report). Briefs have been filed, oral argument heard and the issues submitted. II. Contentions. The Superintendent contends: (1) that corporations can act only through their agents and that they are bound by the acts of their agents committed within the scope of their authority and that C. R. Street was agent for all the plaintiffs in conducting this litigation and having bribed a public official and party to pending, suits, the plaintiffs must be held to be bound by his acts and to suffer its consequences, among which is that the doors of equity must be shut upon their further claims for relief in suits so contaminated; and (2) that if the plaintiffs did not know that bribery was to be involved in this settlement, that they had such knowledge when the bribe was paid as to have been put upon inquiry. The companies contend that the crux of the matter before this court is whether the separate companies had knowledge of the bribery transactions — meaning actual knowledge or facts sufficient to put upon inquiry. Absence of such knowledge is argued under four headings based upon conceived different fact situations as to various .companies. The first heading covers 66 companies (mostly smaller companies) which made no contribution to the funds contributed to Street and used by him in the initial bribery payments. The second heading covers 13 companies which are in the same situation as the above 66 companies except that a vice-president of each of the three “groups” (making up the 13 companies) was a member of the Subscribers Actuarial Committee. The third heading covers 34 New York companies which contributed to the funds which Street used in the initial bribery payments. The fourth heading covers 26 Hartford companies which made like contributions. Comparison of the just stated positions of the contending parties presents the issues : (I) whether actual or implied knowledge (in the sense of facts putting upon inquiry) is necessary; and (II), if such knowledge be necessary, the situation of the several companies in that respect. III. Facts. (A) Outline of the Litigation. The Superintendent of Insurance in Missouri is an official having statutory powers and duties as to insurance companies doing business in Missouri. Included in such powers is the regulation of premium rates to be charged for insurance other than life (R.S.Mo.1919, Secs. 6283, 6286 and 6287 — similar sections are R.S.Mo. 1929, Secs. 5873, 5876 and 5877, Mo.St. Ann. §§ 5873, 5876, 5877, pp. 4480, 4483, 4484). A statutory judicial review of any such rate orders of the Superintendent is provided (R.S.Mo.1919, Sec. 6284; R.S.Mo.1929, Sec. 5874, Mo.St.Ann. § 5874, p. 4482). January 5, 1922, the Superintendent made an order reducing existing fire, windstorm and hail insurance rates by 15%. Shortly thereafter, the companies affected joined in a State court injunction suit to prevent enforcement of this order. Soon after initiation of this suit, the parties entered into a stipulation which provided for and resulted in withdrawal of the order and dismissal of the suit. Among other matters this stipulation prescribed: certain conditions applicable to contemplated future action of the Superintendent as to reduction of such rates; that the companies would challenge any such future order only by the statutory review method; that, if such character of challenge be made and the companies lose, each of them would make “refund to the assured of any excess of premiums [above the rates as reduced] collected by them.” Subsequent hearings before the Superintendent resulted (October 9, 1922) in an order reducing such rates by 10%. Shortly thereafter, the affected companies joined in a statutory review proceeding (in compliance with the stipulation). This proceeding resulted unfavorably for the companies. Ætna Insurance Co. v. Hyde, 315 Mo. 113, 285 S.W. 65. Certiorari was granted (273 U.S. 681, 47 S.Ct. 113, 71 L. Ed. 837) and, in 1929, the writ was dismissed on the ground that no federal question was presented because the aggregate experience of the companies in a joint suit furnished no basis to test the claimed confiscatory character of the order of the Superintendent as to each of the companies separately. 275 U.S. 440, 48 S.Ct. 174, 72 L.Ed. 357. Shortly after this dismissal, 155 companies filed separate injunction suits in this court challenging validity of the 10% reduction order. On applications for temporary injunctions, the cases were heard together on the pleadings and affidavits. Temporary injunctions were granted as to 41 companies. They were denied as to 114 companies (without prejudice) on the ground that they came with “unclean hands” in that they had not made the restitutions to policyholders, as required by the above stipulation, since the statutory review proceeding had resulted unfavorably to them (D.C., 34 F.2d 185) — “without prejudice” meant that these companies might renew their applications for temporary injunctions upon showings they had made such restitutions. Appeals by the 114 companies resulted in affirmances. National Fire Ins. Co. v. Thompson, 281 U.S. 331, 50 S.Ct. 288, 74 L.Ed. 881. In May, 1929 (soon after the affirmances), the 155 suits (including the 41 in which temporary-injunctions had been granted) were voluntarily dismissed by the companies plaintiffs. These dismissals left the 10% reduction order in effect and thereafter unchallenged until December 30, 1929. December 30, 1929, more than 200 companies notified the Superintendent of increases of 16%j% of the then rates (the rate as reduced by the 10% reduction order) — this increase was a net increase of 5% over the rates as they had existed be-, fore' any reduction orders were made. Pending investigations by the Superintendent, such increases were made effective as of June 1, 1930. The Superintendent not having acted upon the- notices (claiming he was in course of such investigation), 139 of the companies filed 137 separate suits in this court (on May 28, 1930) to enjoin him from interfering with collection of the proposed increased rates. On the same day, the Superintendent denied the increase. July 2, 1930, this court entered orders for temporary injunctions against the Superintendent and the Attorney General conditioned upon separate bonds for $10,000 and upon payment to a custodian (appointed by the court) quarterly of the 16%|% premium increase collected during each quarter year. In September, 1930, a special master was appointed to take testimony for final decrees. February 19, 1934, the first five cases in which reports had been filed were submitted on briefs and oral arguments. April 29, 1935, orders were entered denying motions, in the five submitted cases, to strike from the answers of the Superintendent and Attorney General a challenge of “unclean hands” based on failure of each of these companies to refund to the policyholders the 10% of premiums collected (during certain periods prior to commencement of these suits) by each of them in violation of the above 10.% reduction order of the Superintendent. Also this order required these five cases to be brought to issue upon such refund within ten days and, thereupon, re-referred to the master “for the sole and only purpose” of taking testimony as to refund payments made or attempted to be made “and/or reasons for not making such payments” by each of the five companies. June 18, 1935, a verified “Motion for Decree” was filed in each of the entire number of pending cases. The day following, a “Stipulation” was similarly filed. June 22, 1935, these motions and stipulations were presented to the court. - At the same session of the court, there were presented applications for leave to file interventions by several policyholders who desired to oppose the motions. These applications were opposed. After subsequent proceedings concerning these applications, an order was made (November 13, 1935) permitting such interventions and also giving any and all other policyholders (whose premiums had contributed to the impounded funds) until December 31, 1935, to file interventions in opposition to the motions. Thereafter, the proposed interveners withdrew their applications and no others were filed under the permissive order. February 1, 1936, decrees were entered, on the motions and stipulations, dismissing each suit and providing" for distribution of the funds impounded with the custodian. These impounded funds approximated $10,000,000. By 1939, this distribution was almost completed. At this stage of the litigation arose the proceedings now before the court. (B) Committees. While the insurance business is competitive, yet there are many matters of common interest — such as rates, regulations, adjustment of participating losses, and litigation concerning matters of common interest. To look after these common interest matters, various national, regional and local State bodies exist. Those with which we are more immediately concerned are the Missouri Inspection Bureau, the Subscribers Actuarial Committee and the Insurance Executives Association. Missouri Inspection Bureau. This is Paul W. Terry doing business as the Missouri Inspection Bureau (unincorporated). The purpose of the bureau.is maintaining fire insurance rates, filing with the Superintendent of schedules for various companies as an actuarial bureau under the Missouri Rating Act. It prepares and files general basis schedules, including basic charges, charges, credits, terms, conditions and riders, and permits for the doing of fire, windstorm and hail insurance business in the State of Missouri. For its compensation it makes assessments on the members of the bureau. It has a more or less set overhead expense for these ordinary routine duties. Every company is assessed on the basis of its premiums written in Missouri. This bureau makes a general assessment every year which includes excess expenses over the regular bureau expenses. Subscribers Actuarial Committee. This Committee was formed, in 1915, originally to work out the details of the method of writing insurance for more than one year at rates reduced from the annual rates. It is not governed by any constitution, bylaws or rules. Because it represented all stock fire insurance companies’ interests, it gradually was given other work to do for the companies. Among these added duties, were matters relating to term rates and fire insurance rates and supervision of the various State bureaus, with particular reference to their administrative and financial problems. There was a feeling among the companies that the entire operations in which the companies had a common interest could be more economically handled by the Committee. As the matter developed (the Committee being the only-agency representing the common interests) all problems relating to the bureaus were referred to the Committee. There were 7 or 8 members of the Committee and they are elected semi-annually, by the “subscribers”, from executives (usually vice-presidents or managers) of the various companies. It has a chairman and secretary — “the secretary has kept a record, largely for his own guidance, as to w-hat transpired at those [Committee] meetings, and what needed to be done, so far as the secretary was concerned, the secretary being the man who handled the detail of the work.” C. R. Street was chairman of the Committee during the period here involved. The Insurance Executives Association. This Association is composed of chief executives of American companies and American managers of foreign companies — the main companies but not all companies in this litigation are members. It has a board of- 15 trustees. It has only two officials, president and secretary (who acts as assistant manager under the president)— these officials are required to be non-stockholders in insurance companies. It functions as a convenient vehicle for looking after matters of common interest which are not local. It is a sort of working forum in which matters of general common interest to stock fire insurance business may be considered; and is a kind of clearing house for information in matters of that kind and of trouble. It aids in developing policies affecting the companies in common. It has no control of any kind over any insurance business but makes suggestions which are deemed helpful. Paul L. Haid was president and J. D. Ersldne was secretary during the period involved here. (C) Groups. Most of these companies operated in “Groups,” based on business affiliation, alliance, ownership or management. In a “group” there is either some mutuality of officers or a common management. A group usually is operated from a common office with a common staff of employees. Ordinarily, a group is known by the name of the oldest or the largest or the parent company therein. For convenience in this litigation, they are also designated by numbers- — as “Group 1”, “Group 2”, etc. In some instances, only a single company is in a group. With the exceptions of Group 56 and Group 57, each group is composed of one or more companies. Group 56 is composed of six companies (foreign companies and their American subsidiaries) represented by the incorporated insurance agency of “Crum and Forster”, which acts as American general manager for the companies in that group. Group 57 is the Underwriters Grain Association. This Association is not a party to any of these suits and represents solely an impounding account with the custodian of the court. This account is merely a matter of practical convenience based on the circumstances that the Association places large policies (only on grain in storage) participated in by different companies and that it would be difficult (for impounding purposes) to allocate single premiums among the companies participating in each of the different policies. There are 57 of these groups. A list of the members in each group is set forth in the report of the master at pages 18-23, both inclusive. (D) Conduct and Control of Missouri Rate Litigation. Although Paul- W. Terry (Missouri Inspection Bureau) filed the 16%% increase of rates schedules with the Superintendent and caused these suits to be filed by the separate companies to protect those proposed rates, the Subscribers Actuarial Committee was in complete charge for the plaintiff companies not only of these suits but also of the earlier and of the other litigations both in the Federal and in the State courts. It had sole direction of all of the Missouri rate litigations. The Insurance Executives Association had nothing to do with any of this litigation. The only semblance of connection the Association had with this litigation was when Street requested Haid to assemble the New York executives at the time he collected the $62,500 (part of the $100,500 used for initial bribe payment) May 2, 1935, and when Street had Haid assemble “certain” executives for the meeting in March, 1936, to determine the 5% contribution (used for the subsequent bribe payment of $330,000). These two meetings were not meetings of the Association nor of the trustees thereof. Street seems merely to have utilized Haid as a convenient person to get together those he wanted to see and to assemble and send to him (Street) the checks covering the above matters. Neither Haid nor Erskine had any connection with the Subscribers Actuarial Committee. As said above, the Subscribers Actuarial Committee had complete control and direction of all of this Missouri rate litigation. The expenses of all kinds for this litigation as it progressed were collected for the Subscribers Actuarial Committee through the Missouri Inspection Bureau (Paul W. Terry) from the interested companies on the basis of Missouri premiums and expended under direction of the Actuarial Committee. No funds for such purposes were collected or expended in any other way, except those collected by Street for this bribery. Street had no connection at any time with the Missouri Inspection Bureau. While there was much and varied Missouri rate litigation, it was all handled as being one general controversy. The Actuarial Committee hired, as general counsel to conduct this litigation, the law firm of Hicks and Folonie of Chicago. While Hicks was active in the earlier stages of the litigation, Folonie took charge later and was the active legal head beginning some time before commencement of the 16%% rate litigation and thereafter up to the filing by the Superintendent of the motion for citation in the proceeding now before the court. With consent of the Actuarial Committee, Folonie hired various local counsel at different times, who acted under his direction. Although there were many discussions and some formal authorization by the Actuarial Committee, Street (Chairman of the Actuarial Committee) was the personage in whom centered the active and actual direction of the litigation. Much of this power, he seems to have assumed, but the Committee knew of and permitted it. No other member of the Committee was active in this litigation “other than the fact that periodically'Mr. Street made a rather brief [verbal] summary of what was going on, based on the reports he had received from the attorneys' from time to time.” Not only members of the Committee knew that Street was directing the litigation, but also executives of many of the companies had such understanding. Street was the foremost fire insurance personality in the western territory. He was a man of long insurance experience, a dominating personality and one who did not tolerate opposition. In all of the minutes of the Actuarial Committee, during 1935 and 1936, reference to the Missouri litigation is usually confined to reports from Street or from Folonie with no action by the Committee recorded. One exception of importance is that the Committee, on March 19, 1935, “approved” conferences which Street reported he had had concerning settlement of the litigation “and he was requested to proceed with those contemplated ‘with power’.” At this meeting (March 19, 1935), Street did not disclose nor was he asked with whom he was negotiating nor the terms being discussed (unless it was as to a 90-10% or a 80-20% compromise). Except this one time, Street never reported to the Committee concerning a settlement before the settlement was made and the motions for decree and. the stipulations therefor had been presented to the court. The next entry in the minutes as to Missouri litigation is about two months (July 9, 1935) after the agreement and while disposition of the applications of certain policyholders to intervene (as hereinbefore set forth) were pending — such minutes show “reports received from Attorney Folonie from time to .time on the progress of the settlement negotiations were presented in detail, and his [Folonie’s] report of July 6th was read by the Chairman, following which the Chairman explained some of the ramifications of this controversy and asked for the continued support of the committee in handling this matter. After discussion it was voted the sense of the meeting that the Chairman be authorized to continue to conduct these negotiations along whatever lines seemed expedient.” There was in minutes of this meeting, also, reference to certain advertisements concerning the settlement which had been published in Missouri newspapers. On the same page is “Memorandum of Proposed Settlement.” Neither the report of July 6th nor the above “memorandum” could be found by the secretary of the Committee, who was the proper custodian thereof. Except for the one or two members of the Actuarial Committee who (as company executives) attended the Hartford or New York meetings, the members of the Committee knew nothing of the collection of the $100,500 bribe fund. Several of them knew of the 5% collection, but never investigated the purpose for it. In June, 1935, the Actuarial Committee sent a circular letter to the companies stating that a settlement agreement had been made and giving the general terms thereof. February 4, 1936 (three days after the decrees were entered) the Actuarial Committee sent a circular letter to each of the companies stating the decrees had been entered “disposing of this case. It [the decree] may be summarized as follows:” In this summary it is stated that “80 per cent [of the impounded funds] to companies, of which 50 per cent is to be sent to them directly, and 30 per cent to C. R. Street and R. J. Folonie, trustees.” The last paragraph in the letter is as follows: “The money coming into the hands of C. R. Street and R. J. Folonie, trustees, will be employed to discharge any debts incurred by or under the direction of this committee ; agreed amounts payable to the Superintendent of Insurance and for his counsel; court costs; Custodian’s fees; attorneys’ fees and expenses of counsel for the companies ; costs of administering and safeguafding money in the hands of the trustees ; contingent allowances or charges ; any remaining balance subject to distribution to the companies will not, in the nature of the matter, be finally and completely distributable for some time to come.” The testimony is, and there seems to be no dispute as to the matter, that the Actuarial Committee authorized issuance of payment to the companies (in March, 1936) of the 11% from the 30% trustees’ funds, although there seems no formal entry of such action in the very informal minutes of the Committee. (E) The Bribery and Collections of Money Therefor. (1) Bribery negotiations. The immediate actors in these sordid transactions were Thomas J. Pendergast, R. Emmett O’Malley, A. L. McCormack and C. R. Street. Pendergast was a political leader of pronounced influence in Missouri, engaged in various businesses and not an attorney. O’Malley was the then Superintendent of Insurance and a close friend of and adherent to Pendergast. - McCormack was engaged in and rather prominent in insurance business at St. Louis, Missouri-; had been president of the State Agents Association in Missouri; and was a friend of O’Malley. C. R. Street (residing in Chicago) was vice-president of six companies (of which he was western manager for five) ; was chairman of the Subscribers Actuarial Committee; and was in charge of the Missouri rate litigations for that Committee and, therethrough, for the companies. “Early in 1935,” O’Malley went to St. Louis and asked McCormack if he “thought that the insurance companies would want to settle the fire insurance rate case.” McCormack said he had no authority whatever but, if O’Malley “had any suggestions to offer, I would be glad to convey it to Mr. Street.” O’Malley replied "that “maybe if Mr. Street would talk with Mr. Pendergast that they might be able to get together and dispose of the case.” A few days later, McCormack went to Chicago and told Street what O’Malley had said. Street said he “would be glad to meet with Mr. Pendergast.” McCormack returned to St. Louis and informed O’Malley, who said he would try to arrange a meeting time. Later, O’Malley telephoned McCormack that Pendergast would meet Street in Chicago on a certain date and McCormack telephoned that information to Street. This meeting was “two or three weeks” after the first trip of McCormack to Chicago. Street and Pendergast met — McCormack was in and out of the meeting which lasted an hour or an hour and a half. Street said “he would be willing to pay someone a fee for bringing an acceptable settlement.” Street and Pendergast agréed Pendergast would be paid $500,000 for an “acceptable settlement.” “Sometime later”, McCormack was in Chicago and Street told him he “was willing to raise the amount to $750,000.00 to expedite the settlement.” Within an hour, McCormack conveyed this information to Pendergast who was then in Chicago. While exact dates as to the above negotiations do not appear, yet negotiations for a settlement had been going on before March 19, 1935 — on which date the Subscribers Actuarial Committee authorized Street “to continue to conduct these negotiations” for a settlement and there is no evidence of any negotiations for any settlement other than these. (2) Collections at New York for InU tial Bribe Payments. In the latter part of April, 1935, Street wired Paul L. Haid (in New York City), who was president of the Insurance Executives Association, to arrange a meeting of certain named persons (executives of bfew York companies) at Haid’s office for May 2nd, to discuss with Street a question of settlement of the Missouri litigation. Besides Haid and Street, those attending the meeting were F. W. Koeckert (president or manager of 7 companies forming Group 11 and a member of the Subscribers Actuarial Committee), Bernard M. Culver and Ernest Sturm (president and chairman of the board, respectively, of 5 companies forming Group 12), William H. Koop (presideiit of 5 companies forming Group 20), Wilfred Kurth (president of 4 companies forming Group 23), Robert P. Barbour (president or manager of 7 companies forming Group 34 and a member of the Subscribers Actuarial Committee), Harold Warner (president or manager of 6 companies forming Group 43) and Harold T. Cartlidge (deputy manager or “second officer”, respectively, of the 6 companies represented by Warner). All of those present knew Street well. The meeting was entirely informal, no minutes or notes were taken, and (according to varying estimates of those present) lasted 15, 20, 30, 45 minutes or “about an hour”. The testimony as to what was said and done at this meeting is somewhat varied as to details; however, the outline appears to be as follows. Street did most of the talking and there was little discussion and no questions asked him. His statement was that he had been working upon a compromise and settlement of the Missouri litigation and “hoped” to accomplish it on the basis of return of 90% of the impounded funds to the companies and some changes in premium rates; that he needed $100,000 immediately for “expenses”, or “preliminary expenses” or “legal expenses”; that he expected to raise this amount from the companies in New York and in Hartford, which were those more largely interested, because it would be “physically” difficult to take up the matter with all of the companies involved in the litigation; that he would later render a full account; and that it was necessary for him to act as “agent” of the companies in such negotiations. He made no statement as to whom he was negotiating with; who was to get the money; or why it was needed (other than the general purpose above stated). He was not questioned as to any of these matters. He either suggested or said he would let those present know the amount each should subscribe and there were no questions nor objections to this. Immediately after the meeting, Street gave Haid a slip of paper containing the names of certain companies and the amount to be subscribed by each. Street asked Haid to assemble the checks and send them to him. The same and the following day, Haid assembled and mailed the checks to Street without any letter or memorandum. Haid kept no record or memorandum of transmittal of the checks to Street or of receipt of them from the companies by Haid (except that he checked them off on the paper slip given him by Street until all were received and after mailing checks to Street, the slip was destroyed). The total of these checks ($62,500) was made up of separate checks from companies represented at the meeting ,as follows: Group 11, Koeckert, $7,500; Group 12, Culver, $15,000; Group 20, Koop and Street, $10,000; Group 23, Kurth, $15,000; Group 43, Warner, $10,000; Group 56, $5,000. These checks were (except one) payable to “C. R. Street, Chairman” — the exception being Group 20 (in which Street was an executive officer) which was payable to “R. J. Folonie, Atty.” The book entries and memoranda made by the several companies issuing these checks — concerning the purpose for which issued — were as follows: As to Group 11. The cash book entry was “N/ L. Board, C. R. Street, Chairman, $7,500.00” (“N. L.” means National Local Board). Ledger entry was in the account “Nat’l and Local Boards” and was “C. R. Street, - Chairman — $7,500.00.” Koeckert, who gave the information or instructions upon which these entries were made, testified that neither the National Board nor the Local Board had anything to do with Missouri litigation and could give no satisfactory reason for this wrong entry. Ordinarily, a requisition is made for a check. There was none for this check but only an office memorandum. As to Group 12. There is considerable testimony concerning the manner in which this check item was handled. A concise statement is that it was purposely handled in an “unusual” manner in a “suspense account” and as for “legal expenses”. As to Group 20. Requisition for this check was made by Street to be payable to “R. J. Folonie, att., in payment of advance on Missouri Attorneys’ fees” and to be charged to “suspense”. Neither Koop nor Street ever brought this matter to attention of the board of directors of the company issuing the check. As to Group 23. Order for check made by Kurth to be “to order of Charles R. Street, Chairman” for “Advance on Missouri Refund Case, Legal”. The journal entry was “Legal. Charles R. Street, Chairman Mo. Refund Case ...... $15,000.00.” Although the progress or lack of progress of the Missouri litigation was mentioned by directors at their monthly meetings, Kurth never told them of this check or transaction. As to Group 43. The order for the check was “to the order of C. R. Street Chairman” for “advance a/c Missouri: Litigation”. The memo for journal entry “Suspense Account Dr. $10,000.00 To Legal Expenses Cr. $10,000.00 Reason for transfer Payment made May 2, 1935 to C. R. Street, Chairman, as advance on account of Legal Expense, Missouri Litigation to be charged to suspense, as there is a possibility of its recovery.” As to Group 56. This check was issued on verbal directions of Parsons (president of Crum and Forster) to Wyatt (connected with Crum and Forster and vice president of the companies represented by that concern). The voucher, attached to the office copy of the check, showed “Ind. and Cos.” (meaning “individual and company’s account” in the ledger). There was nothing to show what the expenditure was for. The above voucher statement meant only an advance by Crum and Forster for the benefit of companies represented by them. There is no further record except a memorandum of apportionment of this amount between the seven companies represented by Crum and Forster. When this memo was made is not clear. It is entitled “Missouri Impounded Prem. as of 3/31/35”; next follows the separate, the total, and the percentage impoundings of the seven companies; next the $5,000 is apportioned to the several companies on the basis of percentages of impoundings shown. (3) Collections at Hartford for Initial Bribe Payments. This meeting was at Hartford the afternoon of May 3rd, the day following the above New York meeting. A day or two before the meeting at Hartford, Street telephoned G. C. Long, Jr. (vice-president and in charge of western business of the major companies in the Phoenix Insurance group (Group 40)), asking him to arrange a meeting of executives “in authority” of the Hartford fire companies for the afternoon of May 3rd. Street said only that he had an important matter to bring before the executives. Long telephoned the executives. The meeting was attended by W. R. McCain (Group 2), Alfred Stinson (Group 5), R. Clark (Group 8), R. M. Bissell (Group 22), Gilbert Kingan (Group 28), Frank D. Layton (Group 31), Edward Milligan and G. C. Long, Jr. (Group 40), J. H. Vreeland (Group 45) and R. D. Safford (Group 53). Street opened the meeting and did most of the talking. He stated he believed he could settle the Missouri litigation and he was working on a compromise. “I can settle this case if the companies want me to, but I want you to trust me.” He said he would need some money for “legal expenses” and “incidental expenses”; that he wanted to raise $100,-000; that the New York companies had contributed about $65,000; and that he needed the balance. There was discussion concerning the advisability of settlement and the terms on which Street thought it could be made. Several of those present thought it was stated by Street that the money was needed to employ additional and local attorneys because the present attorneys were unfavorable to any compromise and, also, were not on good terms with State authorities and counsel for the Superintendent — others do not remember such statements. The only memorandum made of the meeting (see footnote 18) makes no mention of additional counsel to be employed either because present counsel not suitable for compromise negotiations or for any other reason. In fact, this memorandum, by inference, negatives such thought since it states the money to be raised is to be “turned over” to Hicks and Folonie (the then general counsel) “but it is not to be delivered unless the settlement, as above referred to, is effected”. Street did not state with whom he had been negotiating nor whom he expected to pay this money to — no questions were asked concerning these matters. He expected the larger companies to advance these sums because it would be easier and more expeditious than trying to deal with all of the 137 companies. He made it clear that the $100,000 was needed immediately and he wanted to raise it right then and there. He stated there would be an accounting later. He wanted the companies represented to contribute the round figures he-pro-rated to each. There was no secretary at the meeting, and no notes or memoranda were made by any one at the time. Later, Stinson made a memorandum for his own use. Because of illness, Stinson was not a witness. The contents of this memo are not remembered in all details by others at the meeting. It is as set forth in footnote. Some one suggested that Long he given the checks' and that he send them to Street at Chicago. The checks were: from Group 2, $5,000; Group 5, $3,500; Group 8, $2,000; Group 22, $10,000; Group 31, $5,000; Group 40, $6,500; Group 45, $4,000; and Group 53, $2,000— a total of $38,000. Six of these checks came to Long later that afternoon by messenger. The next day they were mailed to Street at Chicago with a letter. The check of Group 2 was handed Street at the meeting. Layton, who represented Group 31, testifies he referred Street to the group western manager in Chicago, G. H. Bell. May 7, Bell gave the check for $5,000 to Street. This check was given on Street’s statement to Bell that money was needed for attorney fees and expenses. Group 28 made no contribution. Its representative at the meeting (Kingan) told Street the matter was outside his jurisdiction and for Street to take it up with Carsten Claussen, his western manager, in Chicago. Street never mentioned the matter to Claussen. Some of the checks were payable to C. R. Street, Chairman, and others to Hicks and Folonie. Probably fifteen minutes of the meeting were devoted to the raising of the money — the balance to discussion of the suggested terms of settlement and to Street’s statement. The book entries and memoranda made by the several companies issuing these checks — concerning the purpose for which issued — were as follows. As to Group 2, it does not appear what, if any, book entries were made as to the check. As to Group 5, there was a check requisition stating check desired was for “advance Legal Fees” with instructions to charge to “General Expense”. The expense journal entries show carried as “general expense”. The entries in the “legal expense account” throw no light upon the nature of the transaction. As to Group 8, check transmitted to Long in letter marked "Private” and stating check “being advance payment in re Missouri litigation.” The check had notation on face of “advance Re Missouri litigation”. The testimony seems silent as to what, if any, book entries were made. This transaction was not brought to attention of the board of directors. As to Group 22, carried in “suspense account” until end of year, and then probably (the evidence is not clear) charged to “legal expense”. As to- Group 31, there is no testimony as to how this was entered on the books. No memorandum concerning check or for what given was made by Bell, who issued it. The amount was shown in regular statement of “receipts and expenditures” made to the home office — no explanation of purpose of expenditure was given to or asked by home office. As to Group 40, the check bore on its face the notation “Advance. in re Missouri litigation”. How the expenditure was entered on the books does not appear. As to Group 45, it was entered on the books as “legal expenses”. A receipt given by Street showed “In payment of (Handed to Atty. R. J. Folonie).” The amount was claimed as a federal income tax reduction item in 1935 and disallowed “for failure to substantiate the nature and reason for such expenditures.” The only explanation given the tax examiner was “legal expenses in connection with the Missouri impounded premium.” The disallowance was not protested. As to Group 53, the item was held in “suspense”. Later, in March, 1936, it was charged to “legal exp.” Five of the checks were payable to Street “Chairman”, 2 to “Hicks and Folonie, Attys”, and 1 to R. J. Folonie, Attorney”. No account was ever given by Street to anyone as to the use made of any of this money procured by him at New York and at Hartford and no such account was ever requested thereafter by any of those issuing the checks or by anyone representing the companies which gave the checks. (4) Initial Payments of Bribe Money. After receipt of these checks, for $100,-500, Street took them to Folonie. Street endorsed the checks payable to him and requested Folonie to- pass them and the checks payable to Folonie or to Hicks and Folonie through the Hicks and Folonie bank account and to give Street two checks for $50,000 each. This was done. The two checks were cashed by Street and furnished the money for the first and second payments to Pendergast. About May 9, 1935, two days after receipt of the last check (from Bell [for Group 31] by Street), Street telephoned McCormack (at St. Louis) to come to Chicago. McCormack was in Street’s office next morning. Street gave him a package containing $50,000 in currency and asked him to take it to Pendergast. McCormack went to Kansas City by plane that day and delivered the money to Pendergast. Between this delivery and a meeting in Kansas City, on May 14, 1935, McCormack told O’Malley of the payment to Pendergast. At that meeting, the outline terms of a settlement were determined. This meeting was participated in by O’Malley, Street, McCormack, Folonie, local counsel for the companies, counsel for the Superintendent and an actuary from the office of the Superintendent. Counsel later worked this outline into the formal agreement of May 18, 1935. About a week after this meeting, McCormack went to Chicago at Street’s request. Street gave him a second package of $50,-000 in currency for Pendergast. When this was delivered, Pendergast took $5,000 and gave McCormack $22,500 to deliver to O’Malley, which McCormack did, piecemeal at various times when requested by O’Malley. (5) Later Payment of Bribe Money ($330,000.) About April 1, 1936, McCormack was called to Chicago by Street. Street gave him $330,000 to take to Pendergast, which McCormack did. Pendergast counted the money, kept $250,000 and sent $40,000 to O’Malley by McCormack. About six months later, McCormack was given by Street an additional $10,000 in currency which he delivered to Pendergast. (6) Procurement of Money for Bribe Payment of $330,000. The money for this payment of $330,000 was procured by Street in the following way. Under the motions for decrees and the accompanying stipulations, 20% of the impounded funds were to go to policyholders and 80% to the respective companies. Of the 80% going to the companies, 50% was to go forthwith direct to the companies from the custodian. The remaining 30% thereof was, under the motions for decrees and stipulations, to go to “Robert J. Folonie, one of the counsel for plaintiff, and Charles R. Street, Chairman for the insurance companies, who, for them, are supervising this litigation, which the said named parties will take as Trustees for and on behalf of plaintiff insurance companies, and to account therefor to the plaintiffs but not to this Court or the Superintendent.” As entered, the decrees (February 1, 1936) provided, concerning accounting for this 30% going to the trustees, as follows: “they shall account only to the plaintiff; but if this Court shall so order, they are to file a report of disbursements with the Judges of this Court.” February 7, 1936, Folonie and Street made a declaration of trust wherein they recited receipt [from the custodian] of United States securities of par value $2,500,000— the market value was then $2,770,562. The declaration provided that, out of such funds, would be paid (1) the sums required by the agreement with the Superintendent of May 18, 1935, a copy thereof being attached to the declaration (a total of $700,-000) ; (2) costs, fees, and expenses assessed by any court; (3) “for other payments” directed by the Actuarial Committee in writing; and (4) distribute the remainder to the companies under directions of the Actuarial Committee. In June, 1935, a circular letter had been sent to the companies by the Subscribers Actuarial Committee stating that an agreement for settlement had been made and giving the general terms thereof. February 4, 1936, the Subscribers Actuarial Committee sent to each of the plaintiffs a circular letter summarizing the provisions of the decrees of February 1, 1936. Among other things, the summary states that “30 per cent [of the impounded funds] to C. R. Street and R. J. Folonie, trustees.” Also that: “The money coming into the hands of C. R. Street and R. J. Folonie, trustees, will be employed to discharge any debts incurred by or under the direction of this committee ; agreed amounts payable to the Superintendent of Insurance and for his counsel; court costs; Custodian’s fees; attorneys’ fees and expenses of counsel for the companies; costs of administering and safeguarding money in the hands of the trustees; contingent allowances or charges; any remaining balance subject to distribution to the companies will not, in the nature of the matter, be finally and. completely distributable for some time to come.” "Sometime” in March, 1936, Street telephoned or wired Haid to gather “certain executives” on a “named date” in New York. Haid telephoned the executives. Four attended — Sturm (Group 12), Koop (Group 20), Kurth (Group 23) and Warner (Group 43). The meeting lasted about fifteen minutes. Street told them he needed about $450,000 (including the $100,500 subscribed earlier) for “legal expenses”; that the additional $350,000 would approximate 5% of the formerly impounded funds; that the trustees were about to disburse 11% to the companies; that when they received checks for this 11%, he wanted them to send him checks for 5% to-meet these legal expenses; that deductions from the 5% of amounts previously advanced (to make up the earlier $100,500) would be made. No inquiries nor further explanations were made as to what the money was to be used for; why the money was needed; nor why it was not paid direct by the trustees from their funds — “there was no discussion at all with reference to the necessity of getting the money right away.” Procurement of consent to this plan was the only purpose of the meeting. There was no objection. The companies represented at the meeting had deposited with the custodian about 25% of the total impoundings. The 11% checks were issued to each of the various companies and the 5% Checks returned by them. The 11% checks were made payable to the several companies and all were signed “Robert J. Folonie and Charles R. Street, Trustees.” All of these 5% checks (there were 91 checks) were made payable to “C. R. Street, Agent”, except 8 made to “C. R. Street” and 7 made to “R. J. Folonie, Agent”. All of the 5% checks are dated between March 18 to 29, 1936, except 11 — 10 of these 11 were dated in April and the remaining 1 (for $495.50) dated November 25, 1936 (the executive of that group having been away). The total was $347,582.64. From this, the $330,000 was sent to Pendergast. At the time these 5% checks were issued the situation was as follows. All of the companies (including the agency of Crum and Forster (Group 56) and the UnderwritersGrain Association (Group 57) ) had, with one or two exceptions, received all of the 50% of impounded funds going direct to the companies; all knew that they had theretofore, for several years, contributed (through the Missouri Inspection Bureau) to the expenses of the litigation as it progressed; all knew that, under the decrees, 30% (over $2,700,000) had been set aside to the trustees to take care of all expenses of the litigation; all knew that any balance over such expenses was to come back to the companies; all knew that the 11% checks had come from the trustees and represented such payments coming back to the companies; all issued these checks in conjunction with receipt of payment by the trustees of 11% from this trust expense ■fund; each knew that its 5% check was not made payable to the trustees or to either, as trustee — each check being made to one of the persons who was a trustee but to him as “agent” (except the 8 made to Street as an individual) ; all understood the checks had something to do with this litigation; most of them were informed or “assumed” the checks were for “legal expenses” or for “expenses” of the litigation; there could be no possible use for the checks except in connection with expenses of this litigation which was then closed except for distribution to the policyholders; theretofore, all expenses of this and related litigations during the entire time of the Missouri rate controversies had been paid to the Missouri Inspection Bureau on requisitions made by it — except the advancements made at the New York and Hartford meetings to collect the initial ,$100,500 bribe money. Except in a few instances, the 5% checks were requested in person or by telephone by Haid, by Erskine (Haid’s assistant) or by Street — the few exceptions were by brief letters. Except as shown hereinafter (in a few instances), there was no explanation given nor asked as to the use for the money except for “expenses” or “legal expenses" or the like. In those few instances where explanation or accounting was promised, none was ever offered thereafter and no further request ever made therefor. The situation as to the information upon which these 5% checks were issued, any book entries, memoranda, correspondence, etc., is (stated in very concise form) as to each group, as follows: Group. 1. Haid telephoned from New York to president of group companies at Newark, New Jersey, stating 11% check would be sent and 5% check desired to Street “in connection with Missouri impounded premiums”. Requisition for check stated “In connection with Mo. Imp. Prem.” Check issued solely on this statement from Haid. After check issued, president assumes he was informed by Haid that 5% check was for “legal expenses” because company books contain such entry. The parent company issued the check for the group and later the subsidiary company reimbursed for its proportion under check requisition issued for “5% legal fee — Missouri Impounded Prem.” 2. No one in this group knows why this check was issued. Check does not show. No book entries in evidence. Check was for 5%, less $5,000 previously contributed to the $100,500 initial bribe money. 3. “Legal expenses” or “extraordinary expenses”— inquired as to details but got no information — told to send at once, did not inquire why. 4. Does not recall unless told for “some unadjusted expenses”. 5. Memorandum of telephone request for check, from Haid, states it “is to supplement the amount [$3,500.00 contributed to $100,500.00 initial bribe money] that we sent * * * and this payment is for same purpose of advanced legal fees in connection with the rates in Missouri.” Haid had said was for “additional legal expense needed in connection with the Missouri rate litigation.” Check requisition shows “advance legal expense.” Check has same notation. Expense journal (date of check issue) shows check amount but space to show on- what account issued is blank. Later page of same journal, showing analysis of expenses for month, shows item as “Legal Expenses.” 6. “Further attorney fees”. 7. Did not ask what for and did not know — understood required by Street “immediately to met expenses” — presumed “legal expense” proper book entry for. 8. Letter from company accountant to Street states : “We understand that an adjustment has been made in reference to expenses in connection with Missouri impounded premiums, and that some Companies have been refunded an amount on the advanced payment covering legal services. “As we have not received a refund or advices regarding an adjustment, we would be pleased to have any information which you may be in a position to furnish us, as we are anxious to dispose of this item during the current year.” The answer from Street states: “I intended to see you and explain this matter in person sooner but it has been impossible to do so. ****** “There is also a second check for $1,090.-12, which is 11% of your impounded Missouri premiums. “Please now send me your check for $495.50, payable to my order, that being 5%, the same as has been collected from the other companies. “Mr. Haid can give you any explanation you need if you will verbally confer with him, or I will do the same thing the first time I see you.” Check sent and no explanation asked or given thereafter. . Letter transmitting check states “representing 5% of our proportion of advanced fees.” Check has no notation. Receipt from Street stated “Legal expenses re Missouri Rate Case (5% Impounded Premiums).” 9. “Legal expenses in connection with Missouri impounded premiums”. 10. “For purposes that the attorneys would decide”. “Intended Mr. Street to take that and use it as he saw fit”. The check bore “Re: Missouri impounded prems. Services and Legal Expense”. 11. Confusion as to what was told in request for check. Told was for “some distribution Mr. Street was making * * * to the companies”. Also told was for “same kind of expenses had in the first instance [contribution to $100,500 initial bribe fund which had been charged on this group’s books as “N. and L. Boards”]. Check has no notation. Cash book stated no explanation originally but about a year later, on voluntary suggestion by Haid, “Legal Exp.” was inserted. Ledger entitled “Legal Expense” showed “To cash C. R. Street, Agt. $8,281.67.” 12. There was a memorandum (not produced) from Haid to official (now dead) of company. Check requisition states “additional legal expenses in connection with Missouri Impounded Prem’s,” with notation “Charge Atty Fees No. 1”. Letter transmitting check states no purpose. No notation on check. Letter from Street (September 25, 1936) stated that a firm of insurance accountants recommended that this item be stated in the “Conventional Form of Annual Statement” to State officials as "Legal Expenses in re Liquidation Missouri Impounded Premiums”. No book entries in evidence. 13. “Attorney’s fees and expenses in. connection with this litigation”. 14. Inquired and told he (Erskine) did not know what for. Then told Erskine he must know “what to charge it to. Is it to be charged against our recoveries, or is it a matter of legal expense in closing this matter up.” Erskine said the latter. Check requisition stated “In connection with the adjustment of Missouri Imp. Refund to 4/30/36”. 15. Not told purpose and didn’t know but thought for “expenses” — book entry “advance expenses”. 16. “For the payment of expenses and he [Street] incidentally mentioned attorneys’ fees”. Inquired purpose, for purpose of accounting. Cash book entry as to both 11% and 5%: “Missouri 16^ Imp. H Per cent dividend account”. 17. Attorneys’ fees and expenses. Clark who authorized check was member of Actuarial Committee. 18. Legal expenses — testified. check for 5% sent before knew of 11% check. 19. Legal expenses — check requisition is “in payment of Legal Expense