INDUSTRIAL INDEMNITY COMPANY v. GOLDEN STATE COMPANY

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District Court of Appeal, First District, Division 2, California.

INDUSTRIAL INDEMNITY COMPANY, etc., et al., Plaintiffs, Cross-Defendants and Respondents, v. GOLDEN STATE COMPANY, Ltd., etc., et al.; G. W. Thomas Drayage & Rigging Company, Inc.; W. R. Ballinger & Son, a corporation, and Minna M. Ballinger, et al., Defendants, Cross-Complainants and Appellants.*

Civ. 16940.

Decided: August 29, 1956

Park Chamberlain, Earl C. Berger, San Francisco, for appellant Robert L. Johnson Corp. Kenny & Morris, Los Angeles, Jerome Politzer, San Francisco, Morris E. Cohn, Beverly Hills, Hyman & Hyman, San Francisco, for appellants G. W. Thomas Drayage & Rigging Company, Inc., W. R. Ballinger & Son, and Minna M. Ballinger. Thelen, Marrin, Johnson & Bridges, San Francisco, for respondents.

This is the second appeal in this case. It is taken by defendants on behalf of the subscribers as of December 31, 1948, of Industrial Indemnity Exchange, a reciprocal insurance exchange.

Plaintiffs Industrial Indemnity Company, et al., hereinafter called ‘Company’, originally brought an action for declaratory relief regarding the rights of subscribers of Industrial Indemnity Exchange, hereinafter called ‘Exchange’, under an agreement by which the business of Exchange was transferred as a whole to Company for a price to be distributed to the subscribers. Cross-actions were brought in behalf of the subscribers. It was claimed that all of the insurance business transacted by Company belonged in equity to Exchange and that this business had been disloyally diverted by Industrial Underwriters, a partnership, the attorney-in-fact of Exchange, hereinafter called ‘Attorney’, whose partners substantially owned the stock of Company. The court on the first trial found in nearly all respects for plaintiffs and against the cross-complainants.

On appeal this court concluded, Industrial Indem. Co. v. Golden State Co., 117 Cal.App.2d 519, 256 P.2d 677, 690, that the original action for declaratory relief should have been denied because the agreement to which it related was void as violating section 1101 of the Insurance Code. The respondents there contended, in an attempt to avoid the application of Insurance Code section 1101, that the agreement was not a beneficial sale of assets to the Company as prohibited by the Code but a transfer for the purpose of liquidation only. This court after reviewing the provisions of the ‘Transfer and Assumption Agreement’ and commenting that the practical effect of the transaction was that Company acquired the whole business of Exchange as a going concern rejected this contention.

This court then reviewed the correctness of the denial of all relief to the cross-complainants. It was recognized that the attorney-in-fact in this situation was a fiduciary in relation to the subscribers and that the doctrine of corporate opportunities was applicable. It was further stated that the issues of good faith and of sufficient performance of contractual obligations are normally questions of fact. This court noted that the trial court made most elaborate findings as to all circumstances on which it based its holding that the cross-defendants did not breach their fiduciary duty. These findings were fatal to the appeal with respect to the claims of subscribers of Exchange to the business of Company since the appellants failed to show that they were not supported by the evidence. This court said: ‘Under these circumstances it is not for us to say that the ultimate findings of the court below are necessarily improper inferences nor can we hold as a matter of law, contrary to said findings, that the Attorney breached its fiduciary duty to subscribers when it engaged in the writing of workmen's compensation insurance through the medium of Company or that the business of Company was in equity the property of Exchange. We are the more satisfied that this result is not unjust because the gain by Exchange of all profits of the business of Company without participation in them by any of Company's insureds would have given the subscribers of the Exchange a windfall wholly out of line with the setup of such Exchange.

‘However it does not follow that cross-complainants are not entitled to any relief. Although we hold that the subscribers of Exchange are not entitled to the business built up by Company in general—and then they are necessarily not entitled either to the business of its wholly owned subsidiary, Industrial Service Company, mentioned separately on appeal—they have a right to the business taken over by Company in consequence of the Transfer and Assumption Agreement, which we have held to be invalid. If they so desire they are entitled to have that matter wound up in these equity proceedings and for that purpose the judgment denying all relief on the cross-complaints will also have to be reversed.’

This court concluded:

‘The judgment is reversed with directions to the trial court to deny all declaratory relief to plaintiffs on the ground that the agreement as to which it is prayed for is void as contrary to law; if defendants-cross-complainants so desire, to grant them such relief as the court will deem fit to enable them to recover in their representative capacity for subscribers the business and assets obtained by Company in consequence of the agreement herein held to be invalid, and to wind up fully all matters relating thereto; to make, if defendants—cross-complainants so desire and they have made a showing that financial advantages have been obtained by the subscribers they represent because of their services and the services of their attorneys, such orders as the court will deem fit fixing and allowing compensation for said services and providing for payment thereof out of the funds and assets recovered; the cross-appeal of defendants in the cross-actions is dismissed; the respective parties to bear their own costs.’

Following the filing of the remittitur in the Superior Court appellants filed their ‘Petition for Judgment and Decree Pursuant to the Opinion of the District Court of Appeal Herein.’ They asked the court to enter a decree determining the assets and the nature and value and extent of the business taken over by respondents in consequence of the transfer and assumption agreement and to award the same to themselves. They alleged that the District Court of Appeal directed that they be permitted to recover certain property in a representative capacity on behalf of all persons who were subscribers of the Industrial Indemnity Exchange on December 31, 1948; that the aforesaid property consisted of the business and assets obtained by the plaintiff, Industrial Indemnity Company, on January 1, 1949, in consequence of a transfer and assumption agreement held to be invalid; that said property was still in the possession of the said plaintiff, Industrial Indemnity Company, and its full amount and nature and extent had not been determined; that the District Court of Appeal had directed the Superior Court to grant appellants such relief as it deems fit to enable them to recover said property, to wind up fully all matters relating thereto, and to make such orders as it deems fit compensating appellants and their attorneys out of funds and assets recovered. An itemization of then known and discovered business and assets of Exchange for which recovery was sought followed. It was further alleged that there were other assets not yet discovered or identified which constituted the business of Exchange, and were the property and business of Exchange on December 31, 1948, and appellants sought leave to insert these items when ascertained.

Appellant Robert L. Johnson Corporation also filed a ‘Petition for Judgment and Decree Pursuant to Decision of the District Court of Appeal, and for Proceedings Thereunder.’ Appellant Johnson Corporation stated that it was bringing this petition in its own behalf, as one of the owners of Exchange, and as representative of all other similarly situated co-owners. On motion of appellants (all appellants except the Johnson Corporation will be referred to simply as ‘appellants') this petition of appellant Johnson Corporation was stricken from the files.

Appellant Johnson Corporation later moved the Superior Court for certain orders relating to this matter. On motion of respondents this motion of appellant Johnson Corporation was stricken from the files.

Respondents answered appellants' petition for judgment and decree and their amendment to that petition. After a lengthy trial the court made exhaustive findings of fact and set forth its conclusions of law. Judgment was entered to the effect that:

‘1. That pursuant to the remittitur filed herein, Plaintiffs are not entitled to any declaratory relief in connection with the complaint for declaratory relief filed herein and any relief thereunder is denied on the ground that the agreement as to which it is prayed for is void as contrary to law and said complaint for declaratory relief is dismissed.

‘2. That all business, property and assets of Exchange and subscribers at the Exchange obtained by Company in consequence of the Transfer and Assumption Agreement or at any time or in any manner have been returned to the Exchange and are now being held by Industrial Underwriters, the Attorney-in-Fact of Exchange, subject to the control and supervision of the Advisory Committee of the Exchange and the Insurance Commissioner of the State of California; That the Exchange is and has been since December 31, 1948, in liquidation; that the net value of the business, property and assets of Exchange is $323,300.39 and said sum includes all items of any value which are any part of the business, property or assets of the Exchange or the subscribers at the Exchange; that said sum shall be distributed, in liquidation of the Exchange, by Underwriters to those subscribers who had policies of insurance in effect with the Exchange as of December 31, 1948, on a basis whereby each of them will receive such proportion of said amount as his total earned premium on all policies of insurance placed with the Exchange since January 1, 1931 bears to the total earned premium since January 1, 1931 of all subscribers entitled to participate; that in determining the amount of the total earned premium of each such subscriber the Rules and Practices under Rule XV of the Manual of Rules, Classifications and Basic Rates published by the California Inspection Rating Bureau shall be used to determine the continuing identity of all subscribers in cases of changes in ownership or business form.

‘3. That the Special Surplus Fund now being held by Industrial Underwriters shall be distributed and paid to Industrial Underwriters after full provision has been made, by reinsurance or otherwise to the satisfaction of the Insurance Commissioner of the State of California, for the liabilities of the Exchange.

‘4. That the Exchange or the subscribers at the Exchange have no right, title or interest to or in any of the business, property or assets of Company.

‘5. That pursuant to the terms of the remittitur filed herein and no financial advantage to the subscribers because of their services and the services of their attorneys having been realized, no compensation shall be awarded or allowed out of the $323,300. 39 representing the net value of the business, property or assets of the Exchange herein provided to be distributed to the subscribers, for the services of Defendants and Cross-complainants or their attorneys.

‘6. That all parties are to bear their own costs in this proceeding.’

Appellants appeal from this judgment and appellant Johnson Corporation appeals from the judgment and from all intermediate orders, judgments and decrees. The subscribers of Exchange had a right to recover from respondents the business taken over by Company in consequence of the invalid transfer and assumption agreement. The remittitur from this court specifically directed the trial court, if appellants should so desire, to grant appellants ‘such relief as the court will deem fit to enable them to recover in their representative capacity for subscribers the business and assets obtained by Company in consequence of the agreement herein held to be invalid, and to wind up fully all matters relating thereto.’ The position of respondents, with which the trial court has agreed, is that the business and assets of Exchange taken over by Company in consequence of the transfer and assumption agreement consisted of the business in force on December 31, 1948, and the assets relating to this and prior business, subject to terms of certain Underwriters' Agreements to be discussed later. The value of this business was found to be $323,300.39 and this sum was awarded to appellants.

In their petition for judgment appellants stated in part:

‘6) The aforesaid business and assets of the Industrial Indemnity Exchange [taken over by Company in consequence of the invalid transfer and assumption agreement] insofar as now known and discovered consist of the following items:

‘j) The good-will and trade name and insignia of the Industrial Indemnity Exchange and in this particular petitioners pray in the alternative for injunctive relief prohibiting the plaintiff, Industrial Indemnity Company, from the further use of the good-will and trade name and the insignia of the Industrial Indemnity Exchange, together with an award for the reasonable value of the use of said good-will and trade name and insignia by the said plaintiff and for damages for the use thereof or in the alternative for the reasonable market value of the said good-will and trade name and insignia of the Industrial Indemnity Exchange as a going business on Dec. 31, 1948 (heretofore found by this Court not to exceed $1,574,569.23 (Finding LXXXV) in the sum of ..... $.....’

However, appellants later amended their petition and in place and stead of the above paragraph 6j inserted another paragraph in which they claimed certain net earnings, the present value of certain future net earnings, and the value of the trade name and insignia of Exchange. All reference to good will was deleted.

This court in its prior opinion recognized that Company by reason of the invalid agreement came into possession of more than certain physical assets and business of Exchange. It was stated: ‘By taking over all assets, assuming all liabilities, including all outstanding policies of the Exchange and becoming directly liable thereon to the policyholders, the Company acquired the whole business of the Exchange as a going concern and would therefore benefit by the increase of its clientele.’ It was noted that Company was receiving an advantage not consistent with the position of a mere liquidator and that the Insurance Commissioner originally took the position in this matter that the subscribers should receive “an amount representing a reasonable going concern value of the Exchange as measured by the Value to the Company of any Exchange business it might take over in the event of consolidation. * * *” (The commissioner later changed his view somewhat apparently because of the identity between Attorney and Company, but this court stated that this would not change the fact that the Company acquired at least the investment and the going business.) It would seem from this that it was contemplated that appellants in a proper proceeding should be able to recover an amount to compensate them for the going concern value or the good will of Exchange which was received by Company as a result of the invalid agreement. However, relief of this sort was not sought by appellants.

It should be noted that the net worth of Exchange as of December 31, 1951, as computed in accordance with the provisions of the transfer and assumption agreement was $1,018,589.07. (At the time of the first trial this amount was estimated to be $1,894,347.07.) If the agreement had not been held invalid this amount would have been paid, and distributed to the subscribers.

The result is that if the present judgment stands the Company will have in fact everything, for which it agreed in the invalid agreement to pay considerably more than one million dollars to the subscribers and will pay for it only $323,300.39.

As noted above the appellants by amendment abandoned their claim for any recovery for the value of the good will of their business as such and instead sought a recovery of the net profits derived by the Company from insurance written, and in the future reasonably expected to be written, for insureds of the Exchange at the time that its business was illegally taken over by the Company. Appellants justify this course by pointing out that, while the value of good will as such is largely speculative and difficult of exact proof, at the time of the second trial they had the actual experience of four full years of operation by the Company after it had taken over the business of the Exchange under the illegal contract and the amount of business actually done by the Company with the former subscribers of the Exchange, from which the net profits accruing to the Company from such business might be calculated by deducting from the total premiums so received by the Company a proper proportion of the Company's expenses of operation.

Respondents counter with the fact that they produced evidence, which the trial court in the findings accepted, negativing any right to such recovery. This evidence may be summarized as follows: that it is the custom in the insurance business when an insurance company is purchased to value only current business and assets, no allowance being made for any going concern or good will value; that there is no such good will value because the insurance brokers review the situation annually and place their clients' insurance in whatever company, considering all relevant factors, seems most desirable and advantageous for their clients for the ensuing policy year; there was testimony of many of the largest former subscribers, aggregating approximately one-half the business done by the Company with former subscribers of the Exchange, that they placed their business with the Company, not because the Company had acquired the business of the Exchange, but solely because they were stockholders in the Company; as to the other former subscribers of the Exchange who placed their insurance with the Company there was testimony that their brokers would not advise their clients to place their insurance with the Company because it had acquired the business of the Exchange but would canvass the field and recommend the placing of such insurance with whatever company seemed most desirable for the clients uninfluenced by the fact that the Company had acquired the business of the Exchange; and furthermore that the Exchange had in any event decided to discontinue its business. From this it is argued that the finding that the Exchange suffered no loss and hence is not entitled to any of the profit from such business is amply supported.

In assaying the validity of this position it is relevant to consider the factual situation. The sale of the business to the Company was held by us on the former appeal to be in contravention of sec. 1101 of the Insurance Code because of the fiduciary relation existing between the parties. Even though the Company was acting in actual good faith and in ignorance of the illegal nature of the contract it nonetheless breached its fiduciary relation in attempting to acquire the business of the Exchange in violation of the express prohibition of the law. By its breach of the fiduciary relation, and violation of an express statute enacted for the protection of the Exchange in just such a situation, it could not divest itself of its character as a fiduciary toward the Exchange. It remained in the position of a fiduciary of the Exchange after the making of the illegal contract as before. It is unthinkable that a fiduciary by a breach of its trust could terminate its fiduciary relation or find itself in a more advantageous position than it was before because of such breach.

We are thus faced with the question: Can the Company retain the profits which it secured from the former subscribers of the Exchange following its wrongful acquisition of the business of the Exchange in breach of its fiduciary duties and in violation of a statute designed to prevent it from doing just what it in fact did? Courts of equity have traditionally been concerned as much with preventing fiduciaries from benefiting from breaches of their trust as they have been with protecting beneficiaries from losses which they otherwise would not have sustained. Cases cited infra.

It must never be forgotten in considering the remedies to be afforded beneficiaries for breaches of trust by their fiduciaries that courts look with a particularly jealous eye upon the trust relation and hold fiduciaries to the highest standard of good faith. In a case often since quoted from, Mr. Justice Cardozo used these words: ‘Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions. [Citation.] Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crown.' Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546, 62 A.L.R. 1.

The pertinent and controlling facts are simple and may be simply stated. By breach of its trust and in violation of the law, the Company illegally acquired the business of the Exchange. It retained its fiduciary character after the illegal acquisition as before. Following this illegal acquisition it acquired and benefited from a large portion of the insurance business formerly done by the Exchange. Under these circumstances it cannot lie in the mouth of the Company to say, ‘The Exchange lost nothing because it would not have had the business anyway. We gained nothing which we would not have gotten in any event and so we cannot be held liable.’ The fact remains that the Company illegally acquired the business of the Exchange. It kept and still has many of Exchange's customers. It put itself in the position to acquire those customers by its own breach of trust and violation of the law. To permit it to profit from those customers would permit it to reap a gain from its own breach of duty and illegal act. That it might have gotten these customers in another way if it had not breached its trust and violated the law does not undo the fact that it did breach its trust and violate the law and acquire them in that way. The Company illegally scrambled the eggs. Neither it nor the courts can unscramble them now, nor place Exchange in the position in which it was before. The Company must take the consequences of what cannot be undone. It cannot ask us to place it in the position in which it might have been if it had not illegally acquired and liquidated the business of the Exchange.

The Supreme Court of the United States said in Crites, Inc., v. Prudential Ins. Co. of America, 322 U.S. 408, 417, 64 S.Ct. 1075, 1080, 88 L.Ed. 1356: ‘In this type of situation ‘the incidence of a particular conflict of interest can seldom be measured with any degree of certainty.’ [Citation.] Proof of profits resulting from an irregular or conflicting course of conduct is sufficient.'

So Mr. Justice Cardozo said in Meinhard v. Salmon, supra, 164 N.E. at page 547:

‘The trouble about his conduct is that he excluded his coadventurer from any chance to compete * * *.

‘No answer is it to say that the chance would have been of little value even if seasonably offered. Such a calculus of probabilities is beyond the science of the chancery.’

Herein follow two equally pertinent statements of the United States Supreme Court:

‘It makes no difference that the estate was not a loser in the transaction * * *. It is the relation of the trustee to the estate which prevents his dealing in such a way as to make a personal profit for himself.’ Magruder v. Drury, 235 U.S. 106, 120, 35 S.Ct. 77, 82, 59 L.Ed. 151.

‘The course taken was one which a fiduciary could not legally pursue. [Citation.] Since he did pursue it and profits resulted the law made him accountable * * * for all the profits obtained by him and those who were associated with him in the matter, although the estate may not have been injured thereby.’ Jackson v. Smith, 254 U.S. 586, 588–589, 41 S.Ct. 200, 201, 65 L.Ed. 418.

In Menefee v. Oxnam, 42 Cal.App. 81, 87–88, 183 P. 379, 382, the court used equally pertinent language: ‘Though it is the general rule that fraud without at least some slight injury is not ground for relief, this general rule is not an obstacle to recovery in cases of the kind here under consideration, even though there be a total absence of injury to the complaining party. * * * The rule that a coadventurer must act with utmost good faith, * * * is not intended to be remedial of actual wrong, but preventive of the possibility of it, and it matters not that there is no fraud meditated and no injury done.’

In Comment (d) to sec. 160, Restatement of Restitution, after pointing out that while ordinarily restitution is used to restore to a plaintiff property of which he has been unjustly deprived, the text continues (pp. 643–644): ‘There are some situations, however, in which a constructive trust is imposed in favor of a plaintiff who has not suffered a loss as great as the benefit received by the defendant. In these situations the defendant is compelled to surrender the benefit on the ground that he would be unjustly enriched if he were permitted to retain it, even though that enrichment is not at the expense of the plaintiff. Thus, if the defendant has made a profit through the violation of a duty to the plaintiff to whom he is in a fiduciary relation, he can be compelled to surrender the profit to the plaintiff, although the profit was not made at the expense of the plaintiff’.

To make the nice calculations by hindsight which respondents ask us to make in this case would reward their violation of the law by a windfall of thousands of dollars which they would have been bound to pay if their conduct had been legal. Equity should not countenance such a result if by following established equitable principles it can be avoided. One of the recognized forms of relief is the recovery of the profits accruing to the fiduciary who breaches his trust. Restatement Trusts, sec. 205(b); 2 Scott on Trusts, sec. 170.25, p. 909, sec. 205, p. 1098, sec. 206, pp. 1105–1106, sec. 462.2, p. 2318. There is nothing in our former opinion preventing appellants from recovering these profits. We intended in that opinion no more than to direct that appellants be allowed whatever recovery they might be entitled to in equity for the wrongful taking over of the business of the Exchange. We did not consider, much less decide, the extent and nature of that relief.

Respondents argue that section 1103 of the Insurance Code fixes the measure of recovery for a violation of section 1101 and that the recovery of these profits cannot be brought within its terms. Section 1103 provides: ‘Whenever an insurer is injured or made to suffer loss by reason of any violation of the provisions of section[s] 1101 * * * such insurer may recover * * * damages sufficient to compensate such insurer for such loss.’

The section deals only with damages. The profits in question are recoverable not as damages but by way of restitution, and as we have seen without regard to loss suffered by the beneficiary. The rule was clearly stated by the court in Speed v. Transamerica Corp., D.C., 135 F.Supp. 176, 187, 188, quoting from Prosser on Torts: “When restitution is sought either in equity or at law a much more liberal policy has been adopted. Since the purpose is not to compensate the plaintiff's loss but to restore what the defendant has received, the courts look to the inequity of allowing him to retain it rather than to the damage which the plaintiff has sustained.”

Nor can section 2238, Civil Code avail respondents. That section reads: ‘A trustee who uses or disposes of the trust property in any manner not authorized by the trust, but in good faith, and with intent to serve the interests of the beneficiary, is liable only to make good whatever is lost to the beneficiary by his error.’ Here respondents' good faith may not be questioned, but they nevertheless violated an express statute enacted for the protection of the Exchange. Ignorance of the law is traditionally no excuse for its violation. It is sufficient that the violator intentionally does the act which the law prohibits. People v. Dillon, 199 Cal. 1, 7–9, 248 P. 230.

It follows that respondents were guilty of something more than the use and disposition of trust property in a ‘manner not authorized by the trust’ which is dealt within section 2238 Civil Code. They dealt with the trust property in violation of an express statute in a manner forbidden by the law and made a crime by section 1106 Insurance Code. Under the circumstances of this case section 2238 Civil Code is inapplicable. To apply it would permit respondents to reap a benefit from their own violation of the law.

We give no consideration on this appeal to the proper calculation of such net profits other than to say that the expenses of the Company properly allocable to these policies should be deducted from the premiums to ascertain such profits. The court made no finding of the amount of such net profits in the judgment appealed from. On another trial it will make such finding based on its weighing of the evidence that may be produced on the subject at that trial.

A consideration of the fact that the recovery from a fiduciary of profits made from his breach of duty to his beneficiary is allowed by way of restitution without regard to the beneficiary's loss demonstrates that there can be no recovery for anticipated future profits in the circumstances of this case. It is the profits actually accruing to the fiduciary from his breach which are the subject of restitution. Respondents cannot be made to restore what they have not received. To allow an amount for anticipated future profits would be to allow damages, not restitution, and damages are based on loss or injury to the plaintiff. Since in this case the court has found on substantial evidence that Exchange suffered no loss of profits there can be no award for such future loss by way of damages, as obviously there can be none by way of restitution.

Appellants suggest that the trial court in its judgment might reserve the right by supplemental judgments to award such future profits as they actually accrue. We have no doubt of the power of a court of equity to do this in the exercise of its sound discretion. Whether if the court refuses to do this such profits as they accrue may be made the basis of future action by appellants is something which has not been briefed by the parties and which we should not decide on this appeal.

In the Underwriters' Agreement there was a provision for the accumulation of a fund to go to the attorney-in-fact in case of liquidation of the Exchange to cover costs of liquidation and compensation to the attorney-in-fact for his services as liquidator. This amounts to $592,322.21. His rights to this amount have been assigned by the attorney-in-fact to the Company. Following the first decision of this court holding the sale of the business of Exchange illegal, the Insurance Commissioner licensed the attorney-in-fact to continue the liquidation of the Exchange. The trial court found that the Exchange had been liquidated in accordance with the Underwriters' Agreement and that this fund was the property of the Company under the assignment to it by the attorney-in-fact. The parties argue the question whether the void Assumption Agreement terminated the Underwriters' Agreement, appellants claiming that it did, citing Pennsylvania Water & Power Co. v. Consolidated Gas, etc., 4 Cir., 186 F.2d 934; and Virginia Dare Transportation Co. v. Norfolk Southern Bus Corp., 4 Cir., 176 F.2d 354, and respondents arguing that it did not, citing 17 C.J.S., Contracts, § 287, p. 674; Indiana Flooring Co. v. Grand Rapids Trust Co., 6 Cir., 20 F.2d 63; Carson v. Sinking Fund Commission, Pa.Com.Pl., 2 Lyc. 3; and Tearney v. Marmiom, 103 W.Va. 394, 137 S.E. 543. This question seems somewhat beside the point. The undisputed and undisputable fact is that neither the attorney-in-fact nor the Company acted or purported to act under the Underwriters' Agreement in liquidating the Exchange. The liquidation of the Exchange was accomplished in violation of law and of the rights of the subscribers of the Exchange by the Company acting under the illegal Assumption Agreement and as owners of the business of the Exchange. What respondents are in effect saying is: ‘True we acted under an illegal agreement in liquidating the Exchange as its owners. But now that the court has held the agreement illegal and that we are not the owners of the business, it is proper for the court to treat our illegal conduct as if it had been legal and put us in the same position after the fact of our illegal conduct as we would have been if we had not proceeded to liquidate the business illegally but instead had liquidated the business legally under the Underwriters' Agreement.’ Equity should not reward the wrongdoer by giving him rights under a contract which he himself illegally breached and repudiated. It is a settled principle of equity that no one can profit from his own wrong. Section 3517 Civ.Code.

If a court could have acted promptly enough to set aside the illegal Assumption Agreement before the illegal liquidation had proceeded to the point of no return, it is possible that the attorney-in-fact might have then proceeded with the liquidation under the terms of the Underwriters' Agreement, but by the time this court had held the Assumption Agreement illegal in 1953, the illegal liquidation had proceeded to a point where the parties could not be put in statu quo by the restoration of the going business to them. Equity was compelled to give them restitution in value, not in kind, and to allow the liquidation theretofore carried on in violation of express law to proceed to its conclusion. That is not to say that what had been done illegally was thereby rendered legal. The liquidation under the illegal Assumption Agreement was and remains illegal and it is that illegality that is at the heart of this action. Ex post facto the courts cannot legalize that illegal action nor treat it as if it had been legal by now attributing it to another agreement under which, but for the illegal Assumption Agreement, it might have been legally taken.

However, we are satisfied that in striking the balance between the parties the actual costs reasonably incurred by respondents in liquidating the business should be allowed to them. Appellants are entitled to the reasonable value of the business and assets illegally taken over by the Company, but any reasonably necessary charges connected with those assets are properly deductible therefrom. All reasonable expenses necessarily involved in discharging the obligations of the Exchange are properly deductible in determining the net value of the assets taken over.

What we have said necessarily disposes of the claim to an amount of compensation provided in the Underwriters' Agreement to be paid to the attorney-in-fact as compensation for his services calculated on a percentage of the premiums actually received by the Exchange. When the business was taken over illegally by the Company the policy years on many of the policies written by Exchange had not expired and it was impossible to determine the exact amount of the premiums on which the compensation of the attorney-in-fact should be based. The attorney-in-fact assigned his rights to these fees to the Company and the trial court found that the Company was entitled to them. Appellants attack this finding on the ground that the Underwriters' Agreement under which they were payable was terminated by the illegal Assumption Agreement.

Respondents argue that since they took over the business in January 1, 1949, and continued the services formerly performed by the attorney-in-fact, the entire fee was earned by the services of the attorney-in-fact performed up to that date and the services performed by the Company after that date. Both parties seem to us somewhat to miss the mark. In our judgment respondents should be compensated for the portion of the services actually performed by the attorney-in-fact under the Underwriters' Agreement up to the date of the take-over by the Company. But the Company was not acting as attorney-in-fact under the Underwriters' Agreement after January 1, 1949, in reinsuring these existing policies of the Exchange and running out their terms. Respondents admit this fact in their brief on page 49 when they say: ‘Since the company was handling this business after January 1, 1949 for its own account, it obviously did not draw a separate check to its own order out of its own funds in payment of this fee.’ Since ‘the Company was handling this business after January 1, 1949 for its own account’ it just as obviously was not handling it as attorney-in-fact under the Underwriters' Agreement on the Exchange's account. Here again respondents are asking us to treat as legally done under the Underwriters' Agreement what in fact was illegally done under the Assumption Agreement. The proper allocation of fees to the attorney-in-fact should take into account the services actually performed by the attorney-in-fact for the portion of the policy years that he acted as attorney-in-fact as related to the services performed by the Company for the balance of the respective policy years. Respondents should be credited only with the portion of the contractual fees properly allocable to the services actually performed by the attorney-in-fact as related to the total services that he would have performed in connection with the various policies if his services had continued under the Underwriters' Agreement until the end of the policy years.

We regard this allocation as equitable for the following reasons: The attorney-in-fact in good faith performed the services, for which he was to be compensated, up to the effective date of the take-over. Thereafter he ceased to perform those services only because he believed in good faith that the Assumption Agreement was legal and valid and superseded the Underwriters' Agreement. In doing equity between the parties the attorney-in-fact should be paid for the services actually performed in good faith by him pursuant to the Underwriters' Agreement, but no compensation should be allowed for the illegal conduct of respondents after the effective date of the take-over. The contract furnishes the measure of compensation spread over the entire life of each policy. That measure can only be effectively applied under the facts of this case by an allocation of a portion of the compensation equal to the portion of the services performed by the attorney-in-fact while he was acting under the Underwriters' Agreement.

The trial court allowed no interest on its award. In this connection it seems important that respondents were not acting in bad faith but under the mistaken belief, bolstered by the approval of the Insurance Commissioner, that the Assumption Agreement was a valid and legal one.

In Title Ins. and Trust Co. v. Ingersoll, 158 Cal. 474, 489, 111 P. 360, 366 (a trust case) we read:

‘The question whether any interest should be charged, and, if any, how much, depends on the circumstances of the particular case, and they may be such that a mere restoration of the property, or its value, without any interest, would be all that justice would require. Wheeler v. Bolton [92 Cal. 159, 172, 28 P. 558.]’

So this court recently held that in equity the awarding or refusal to award interest on unliquidated amounts is discretionary with the court. Leonard v. Huston, 122 Cal.App.2d 541, 265 P.2d 566.

That the courts generally agree that the charging or withholding of interest in such cases lies in the sound discretion of a court of Equity see 90 C.J.S., Trusts, § 338, p. 584 and cases cited in notes 60 and 61.

It must be borne in mind that more than four years elapsed between the effective date of the Assumption Agreement and the decision of this court in 117 Cal.App.2d 519, 256 P.2d 677. During that entire period no question was ever suggested of the illegality of the Assumption Agreement. This court was the first to raise the question on its own initiative. The charging of interest for this period would penalize respondents for their good faith action in ignorance of a law of which appellants were equally ignorant. Following this the case required, and will on another trial require, a long and complicated accounting. Under the circumstances we believe that the following language from Stockton Theatres, Inc., v. Palermo, 121 Cal.App.2d 616, 632, 264 P.2d 74, 85 is particularly applicable:

‘Whether, therefore, it would be just and equitable that interest be charged from the date the remittiturs were returned upon such sum as after a long and complicated accounting might have been found then to have been due presented a question calling for judicial discretion in determining what equity required. This, therefore, we think presented an issue peculiarly for the trial court to determine in so far as the allowance of interest upon the amount ultimately found due be concerned, and we cannot say on this record that the trial court abused that discretion or in the refusal to allow interest prior to judgment failed to do equity. Generally speaking, where an accounting is required in order to arrive at a sum justly due, interest is not allowed. [Citing cases.]’

Upon another trial the question of allowing interest or not, upon the whole or any part of the judgment, and if allowed, from what date or dates it should run on any amount or amounts, will be again a matter upon which the trial court may exercise its sound discretion. It is clear from the authorities cited on this point that the code sections on interest cited by appellants are not binding upon a court of equity in this type of case.

Appellant Johnson argues that the trial court erred in allowing Company to absorb Exchange and in not decreeing the restoration of the business of Exchange as a going concern. Nobody can uneat an apple. Exchange had ceased to be a going concern years before the second trial and Company had in fact absorbed it. The course pursued by the other appellants was the only realistic one left to pursue because the only thing that the court could effectively decree was a restoration in terms of money of the value of a business that was gone beyond the recall of any decree of court. Appellant Johnson does not offer any workable suggestion by which the impossibility of restoring what no longer exists could be accomplished.

This appellant further argues that the name and insignia of Exchange should have been restored to it and the Company enjoined from using them. One answer is that there is no longer an Exchange to which anything could be restored. The Exchange is gone beyond recall. This action on the cross-complaint is one in a representative capacity on behalf of former subscribers of the Exchange. A second answer is that on another trial cross-complainants will get restitution of the value of the business of Exchange, together with all of its assets in an amount to be determined after an accounting pursuant to the directions of this court, plus the net profits accruing to Company from its illegal taking over of the business. The name and insignia are a part of the business so taken over and if of any value, which respondents dispute, are a part of the business and assets compensated for in this fashion.

Finally, appellant Johnson asks us to order that it represent all subscribers on another trial on the ground that the other appellants have demonstrated that they are not properly representing them. As we said above, the other appellants have taken the only realistic approach to the case and we find no good reason to supersede them. The court did not err in dismissing appellant Johnson's cross-complaint. In a representative action, such as this, the court is not bound to permit the intervention of others of the class if their interests are being properly protected. Mann v. Superior Court, 53 Cal.App.2d 272, 280–281, 127 P.2d 970.

The judgment is reversed with directions to the trial court to retry the case and award judgment in accordance with the principles herein expressed. Appellant Johnson to bear its own costs of appeal. The other appellants to recover their costs of appeal from respondents.

PER CURIAM.

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