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MASSACHUSETTS MUT. LIFE INS. CO. v. CENTRAL PENN N

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


February 12, 1974

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
v.
CENTRAL PENN NATIONAL BANK et al.

Luongo, District Judge.

The opinion of the court was delivered by: LUONGO

LUONGO, District Judge.

Massachusetts Mutual Life Insurance Company (Mass. Mutual) filed this interpleader proceeding on July 24, 1967 after a number of claims and attachments had been asserted against it for moneys due and to become due from Mass. Mutual to one Gordon S. Miller (Miller) under a General Agency contract. Upon the filing of the interpleader, Mass. Mutual paid into the registry of the Court all sums it claimed were then due and payable to Miller under the contract.

 At an earlier stage of this proceeding, certain questions of law were resolved by Judge (now Senior Judge) C. William Kraft, Jr., acting pursuant to Rule 56(d), F.R. Civ. P. He ruled that wages, commissions and salaries are assignable under Pennsylvania law; that joinder of a wife in such an assignment is not necessary; that attachments made in Massachusetts under Massachusetts law are valid (with an exemption of $50 for wages) and are enforceable under Pennsylvania law. He ruled further, and ordered, inter alia, (Paragraph 4 of Order dated June 30, 1969, Document No. 122) 300 F. Supp. 1217, 1220:

 

"4. The exact status of Miller [whether employee or independent contractor] under his contract with Massachusetts Mutual is a material question of fact which requires a trial."

 I have regarded those rulings by Judge Kraft as the law of the case and have applied them accordingly. Messenger v. Anderson, 225 U.S. 436, 32 S. Ct. 739, 56 L. Ed. 1152 (1912); Antonioli v. Lehigh Coal & Nav. Co., 451 F.2d 1171 (3d Cir. 1971), cert. denied, 406 U.S. 906, 92 S. Ct. 1608, 31 L. Ed. 2d 816 (1972).

 Throughout these proceedings there has been a dispute over whether Mass. Mutual has paid the full amount of the fund into court as required under 28 U.S.C. ยง 1335. The dispute stems from a provision in the contract between Mass. Mutual and Miller which provides for reduction in the rates of renewal commissions payable to Miller upon termination of his General Agency contract for any reason other than Miller's death. Mass. Mutual had terminated Miller's contract on July 7, 1966. The funds paid into court, and the amounts paid thereafter, have reflected payment of renewal commissions at the reduced rates. The issue as to the scope of interpleader was briefed and argued before me. By opinion and order dated August 30, 1973 (Document No. 195), 362 F. Supp. 1398, I ruled that this interpleader proceeding would be limited to determining whether Mass. Mutual has made payments to the fund in accordance with the terms of the agreement between it and Miller as expressed on the face thereof; a determination of the amounts and priority of claims to the fund paid and to be paid; a resolution of Mass. Mutual's right to withhold and set off certain amounts from payments due Miller; and assessment of proper charges and counsel fees against the fund. It was further noted in the Opinion (362 F. Supp. at 1405):

 

"With the proceedings so limited, the interpleading party, Mass. Mutual, will be discharged from liability only to the extent of the amounts paid and to be paid, and Miller and any claimant will be free to assert any other claims they have against Mass. Mutual in an appropriate forum."

 In fact, Miller had already filed a separate suit in this court (Gordon S. Miller v. Massachusetts Mutual Insurance Company, Civil Action No. 72-1185, assigned to the individual calendar of Ditter, J.) seeking damages from Mass. Mutual for alleged wrongful termination of his contract. In this interpleader proceeding, I have accepted the fact of termination of the contract by Mass. Mutual and have expressly ruled that whether such termination by Mass. Mutual gives rise to a claim for damages is beyond the scope of this proceeding. The findings hereinafter made, therefore, must be viewed in light of the limited scope of this proceeding.

  Of the original claimants named as defendants, two, Curtiss National Bank and Pioneer Leasing Corp., have withdrawn their claims with prejudice, leaving as claimants to the fund Central Penn National Bank, Industrial Valley Bank, Franklin National Bank, Mercantile Financial Corporation, Marine Midland Grace Trust Company, and Isadore and Dorothy Mokrin. Also named as defendants in these proceedings were Gordon S. and Frances Miller, his wife. No claim has been filed by them, but it has been stipulated that if anything is left in the fund after the satisfaction of all claims, it is the property of Gordon S. Miller.

 After the institution of this suit, two Florida attorneys, Guilmartin and Bartel, were permitted, by stipulation, to intervene as defendants, but when the case was called for trial, their claim was dismissed for lack of prosecution.

 The matter was tried on October 3, 4, 9, 10 and 11, 1973. At the conclusion of the presentation of evidence, and after summations by counsel, certain oral findings of fact were delivered from the bench for the guidance of counsel in their submissions of additional requests for findings of fact and conclusions of law. To the extent that the written findings hereinafter set forth differ from the oral findings, the written findings supercede and replace the oral findings, the court having since had the benefit of further review of exhibits, the requests and briefs of the parties, and the transcript of the trial testimony.

 Prior to and during the trial numerous references were made to the need for or desirability of a further audit or a more detailed accounting by Mass. Mutual. The parties have since stipulated, however, (Document No. 214) that they do not contest the factual or mathematical accuracy or the accounting methods of Mass. Mutual's accounting to the court for the various amounts paid by it into the registry of the court or to Central Penn and have waived the right to any further audit or detailed accounting.

 Upon pleadings and proof, the court makes the following

 FINDINGS OF FACT

 Relationship between Mass. Mutual and Miller

 1. Massachusetts Mutual Life Insurance Company (Mass. Mutual) is a Massachusetts corporation with its principal office in Springfield, Massachusetts.

 2. Gordon S. Miller (Miller) is an individual who resides in Delaware County, Pennsylvania.

 3. Under date of April 1, 1951, Mass. Mutual and Miller entered into a General Agency contract under the terms of which Miller was designated to maintain and operate a General Agency for Mass. Mutual in Philadelphia, Pennsylvania, for a territory covering parts of Pennsylvania and New Jersey and the entire state of Delaware. On the date of execution the contract contained several letters of amendment, and from time to time thereafter additional letters of amendment were executed. The contract consists of Exhibits P-1 and CP-1, 2 and 3.

 4. From and after his appointment as General Agent, Miller maintained his office for the transaction of the business of the General Agency in Philadelphia, Pennsylvania.

 5. Under the General Agency contract, Mass. Mutual agreed to provide an office for the General Agency and to pay the rent therefor. Miller undertook and agreed to run the General Agency and to be responsible for, or to perform, inter alia, the following:

 (a) Recruiting, hiring, training and supervising agents to sell Mass. Mutual's policies of insurance.

 (b) Hiring, supervision, and responsibility for the acts of office and clerical employees of the General Agency.

 (c) Receipt and forwarding to Mass. Mutual of premiums and renewal premiums collected by and through the General Agency.

  (d) Responsibility for the expenses of operating the General Agency, including the expenses for clerical personnel furnished by Mass. Mutual.

 6. In carrying on the business of the General Agency, Miller's relationship with Mass. Mutual was that of an independent contractor, not an employee. This ultimate finding is based upon the following underlying findings:

 (a) A General Agency performs two essential functions: the first, and more important, is the solicitation of business; the second is the servicing of policies and processing of premiums and commissions.

 (b) The servicing of policies and the processing of premiums and commissions at Miller's Agency was handled by clerical personnel who were hired by, and were employees of, Mass. Mutual, but the salaries, social security and unemployment insurance taxes, and costs of participation in pension plans for such employees were charged to Miller's account by Mass. Mutual. Mass. Mutual exercised control over the hours of work of clerical employees.

 (c) Mass. Mutual did not supervise or control the method by which Miller conducted the solicitation of insurance business.

 (i) Except for financed agents, Miller was free to hire and discharge agents, district managers and non-clerical assistants without approval of or interference by Mass. Mutual.

 (ii) Mass. Mutual reserved the right to approve financed agents before they were hired. Financed agents are those to whom, for a period of time, a specified salary is paid in lieu of commissions. Under such arrangements, Mass. Mutual undertook to be responsible for a portion of the loss resulting from the amount by which such salary exceeds earned commissions.

 (iii) Although Mass. Mutual furnished the standard form contracts entered into by General Agents with their agents and district managers, Miller as General Agent was free to vary the terms of such contracts as to rates of commissions.

 (iv) Mass. Mutual had no control over the hours of work of Miller or any of the agents employed by him.

 (d) Miller's income was derived almost exclusively from the efforts of persons employed by him. He was in the position of realizing a profit or loss in the operation of the General Agency from the manner in which he selected, trained and supervised the efforts of those who performed the sales functions for him.

 (e) In addition to as many as 75 agents working directly for and under him, Miller derived income from sales of insurance by as many as 600 general insurance brokers selling insurance for his General Agency.

 (f) Miller invested large sums of money to finance his agents and to promote his General Agency, paying for advertising, entertainment, training, contests and for advances and guarantees to agents.

 (g) On his income tax return Miller reported the income from his General Agency as "Income from Business" not as "Wages, salaries, etc." Some of the expenses of operating Miller's agency were reimbursed by Mass. Mutual. To the extent such expenses were not reimbursed, they were deducted as expenses in determining the net profit from his General Agency.

 (h) (i) Although Mass. Mutual maintained a qualified pension plan for its employees, Miller and other General Agents were not eligible to, and did not, participate in such plan. Although there were several alternative plans open to General Agents upon retirement, each took the form of a "levelling out" agreement, under which the General Agent could exchange his vested right to receive uncertain commissions on the remaining life of policies which had been written by his Agency for a sum certain each month. In effect, the General Agent could use his vested right to future commissions to purchase an annuity from Mass. Mutual.

 (ii) Mass. Mutual did not withhold federal income tax or social security for Miller or other General Agents, although it did make such withholdings for its employees.

 7. The General Agency contract between Mass. Mutual and Miller provides for the payment of first year and renewal commissions at specified rates for different types of policies. The contract further provides for reduction in the rate of renewal commissions payable to Miller upon termination of the General Agency contract for any reason other than Miller's death. Mass. Mutual terminated the General Agency contract with Miller on July 6, 1966.

 8. The provision for payment of renewal commissions at a reduced rate upon termination of the General Agency contract is, on the face of the agreement, reasonably related to the General Agent's reduced services and responsibility in the operation of the General Agency.

 9. That portion of the General Agency contract which has been marked as Exhibits CP-1, 2 and 3 relates to development credits, Development credits are a form of bonus commissions payable for especially profitable types of insurance business and are designed to foster and stimulate development of desirable new business.

 10. By the terms of the documents granting them, development credits terminate upon termination of the General Agency.

 11. The provision for termination of development credits upon termination of the General Agency contract is, on the face of the agreement, reasonably related to the General Agent's inability to further foster and stimulate development of new business.

 Claimants and Their Claims

 12. Central Penn National Bank (formerly Central-Penn National Bank of Philadelphia) is a national banking association organized and doing business under the provisions of the National Bank Act. It has its principal office and place of business in Montgomery County, Pennsylvania.

 13. On June 3, 1963, Miller borrowed $650,000 from Central Penn, for which he executed a demand collateral note (Exhibit CP-9). Prior to the execution of the demand collateral note, the parties had agreed (as set forth in letter dated February 15, 1963, Exhibit CP-14(f)) that the loan would be for three years with interest payable monthly, with payments in the amount of $10,000 to be made on account of principal every three months, with the entire balance of principal due and payable at the end of three years. It was further agreed that the rate of interest would be 1/2% above the prime interest rate.

 (a) In June 1963 the prime interest rate was 4 1/2% and interest payable on the Miller loan was 5%.

 (b) In December 1965 Central Penn notified (Exhibit CP-14(b)) Miller of an increase in prime rate to 5% and of the consequent increase of interest on his loan to 5 1/2%.

 (c) On March 10, 1966 the prime rate again increased (to 5 1/2%) but Central Penn did not notify Miller of the change in prime rate and the resultant increase in the rate of interest on his loan to 6%, until July 1966 (Exhibit CP-14(a)). Central Penn claims interest at the 6% rate commencing only with the month in which it gave notice of the change, July 1966.

 14. As collateral security for the payment of the aforementioned note, Miller executed and delivered to Central Penn a document entitled "Collateral Assignment of Insurance Renewal Commissions," dated April 25, 1963 to which Mass. Mutual affixed its consent on June 5, 1963 (Exhibit P-6). Financing statements were duly recorded by Central Penn in June 1963 in the offices of the Prothonotary of Philadelphia County, of the Prothonotary of Delaware County, and of the Secretary of the Commonwealth. Continuation statements were filed in Philadelphia County and in Delaware County in April 1968, May 1968 and February 1973, and in the office of the Secretary of the Commonwealth in April 1968 and February 1973 (Exhibits CP-15, 16 and 17).

 15. Following its execution of consent to the Collateral Assignment, Mass. Mutual made payments to Gordon Miller and to Central Penn until the end of January 1966, when such payments were discontinued following the occurrence of certain events which will be hereafter related. The payments were deposited in a Special Checking Account of Miller at Central Penn and parts of such payments were used by Miller to make payments for interest and on account of principal of the loan from Central Penn.

 (a) The last payment made to Miller and Central Penn by Mass. Mutual pursuant to the Collateral Assignment was by check dated January 31, 1966 (Exhibit P-20(d)) in the amount of $11,352.81 for commissions.

 (b) Payments to central Penn for interest and principal on the loan were recorded by Central Penn on its Liability Ledger (Exhibit CP-10).

 (c) The last payment made to Central Penn on account of the loan was in the amount of $2,568.87 on February 2, 1966 for interest due through December 31, 1965.

 (d) The principal balance remaining due to Central Penn, after crediting the aforementioned payments, was $550,000, plus interest.

 16. Lehigh Valley Trust Company was a banking corporation organized and doing business under the laws of the Commonwealth of Pennsylvania, with its principal office and place of business in Lehigh County, Pennsylvania. On December 20, 1968 Industrial Valley Bank became the successor by merger to Lehigh Valley Bank. (Hereafter the merged and the surviving banks will be referred to as IVB).

 17. On June 30, 1965 Miller borrowed the sum of $80,000, and on August 10, 1965, he borrowed the further sum of $20,000, from IVB. Miller and his wife, Frances G. Miller, signed notes promising to repay, on December 30, 1965 and November 10, 1965, respectively, the said amounts to IVB with interest at 6% (Exhibit L-1).

 18. On May 6, 1964 to secure payment of any present or future indebtedness due from him to IVB, Miller executed and delivered to IVB a "Collateral Assignment of Renewal Commissions" due and to become due him from Mass. Mutual under the contract dated April 1, 1951, as amended. The Collateral Assignment to IVB, which was expressly made subject to the prior assignment to Central Penn, was consented to by Mass. Mutual (Exhibit P-7).

 19. No financing statement reflecting the security interest created by the Collateral Assignment of Renewal Commissions to IVB was ever filed.

 20. No payments have been made in reduction of the abovementioned loans from IVB and there remains due and owing to IVB on account of the loans to Miller, the sum of $100,000, with interest at 6% from August 10, 1965.

 21. (a) Mercantile Financial Corporation is a Delaware Corporation with its principal office in Chicago, Illinois.

 (b) On October 22, 1965 judgment by confession was entered on a note against Miller and one Jules Gomez, jointly and severally, in the amount of $165,021.12 in favor of Mercantile Financial Corporation in Civil Action No. 39086 in the United States District Court for the Eastern District of Pennsylvania (Exhibit MFC-1).

 (c) A writ of execution attaching "all debts, contract liabilities and sums owing Gordon S. Miller by Massachusetts General (sic) Life Insurance Company (other than wages and salary)" was served on Mass. Mutual at the Philadelphia Agency by the United States Marshal on January 6, 1966 (Exhibits MFC-2 and 3).

  (d) By Order dated March 27, 1969 the judgment theretofore entered in favor of Mercantile Financial Corporation was, for a consideration recited in said Order, reduced to $100,000, with interest to run thereon from the date of the Order.

 22. (a) Franklin National Bank is a national banking corporation with its principal office and place of business in Nassau County, New York. Pursuant to a merger as of June 30, 1967, it is the successor in interest to Federation Bank and Trust Company (hereafter the merged and the surviving banks will be referred to as Franklin).

 (b) On February 7, 1966 Franklin instituted a suit in equity against Miller in the Superior Court of Suffolk County, Massachusetts (No. 85075 Equity) based on indebtedness due on a note dated September 22, 1965 in the principal amount of $50,000. On the same day a temporary restraining order issued in that action restraining Mass. Mutual from assigning, transferring or otherwise disposing of any amounts due or to become due to Miller under his General Agency contract with Mass. Mutual.

 (c) On February 15 and 21, 1966 interlocutory decrees were entered in that action continuing the temporary restraining order in force until final determination of the suit, except that it was modified to be effective only until the amount of $62,000 was accumulated, excluding from the order commissions and payments due or to become due to agents and employees of Miller, and excluding all amounts payable to creditors whose claims had priority over Franklin's, and permitting, until further order of that court, payments to Central Penn under the assignment dated April 25, 1963 (Exhibit F-1).

 23. (a) Marine Midland Grace Trust Company of New York (Marine Midland) is a New York corporation with its principal place of business in New York City, New York.

 (b) Under date of October 1, 1965 Miller and his wife, Frances G. Miller, executed a promissory note to Marine Midland in the principal sum of $44,397.03, payable six months after date, with interest at 6%.

 (c) The note became in default and in accordance with the provisions thereof, judgment by confession was entered on June 29, 1966 in the amount of $48,003.52, together with costs, in the United States District Court for the Eastern District of Pennsylvania, (Civil Action No. 40569).

 (d) A copy of the judgment was registered in the United States District Court for the District of Massachusetts on July 15, 1966 at E.B.D. 66-103. On April 7, 1967 a Petition to Reach and Apply was filed in the United States District Court for the District of Massachusetts (C.A. 67-300-W) naming as respondents Miller and Mass. Mutual, seeking to reach and to apply amounts due Miller under his General Agency contract with Mass. Mutual to satisfy the judgment in favor of Marine Midland. The Petition to Reach and Apply was dismissed, by stipulation, on May 7, 1968 (Exhibits MM-1, 2 and 3).

 (e) The amount due Marine Midland has been reduced by payments totalling $13,646.49 on account of the judgment, leaving a remaining balance due on the judgment of $34,357.03, plus interest.

 (f) By indenture dated December 3, 1969 Marine Midland assigned the judgment to Harold F. MacNair of Penfield, Pennsylvania.

 24. (a) Isadore Mokrin and Dorothy Mokrin (Mokrin) are individuals, husband and wife, who reside in Margate, New Jersey.

 (b) On March 17, 1967 Mokrin entered a judgment by confession against Miller in the amount of $221,056.03 in the Court of Common Pleas, Philadelphia County, Pennsylvania, March Term, 1967, No. 1002. A Writ of Execution was served on Mass. Mutual in Philadelphia on March 20, 1967 attaching all accounts, credits, moneys and commissions due and to become due from Mass. Mutual to Miller (Exhibits M-2A and 2B).

  (c) On or about April 24, 1967 Mokrin declared upon the aforementioned judgment of the Court of Common Pleas of Philadelphia, Pennsylvania, in the District Court of Springfield, Commonwealth of Massachusetts (No. 192597), and pursuant thereto a Trustee Writ was served on Mass. Mutual on April 24, 1967 (Exhibits M-3A and 3B).

 25. On January 6, 1966 a Writ of Execution was served on Mass. Mutual pursuant to the judgment obtained by Mercantile Financial Corporation in the Eastern District of Pennsylvania in C.A. 39086, as detailed in Finding No. 21(a)-(d).

 26. As a result of the service upon Mass. Mutual of the restraining order and interlocutory decrees issued by the Superior Court of Suffolk County, Massachusetts, as detailed in Finding No. 22(a)-(c), Mass. Mutual, on February 23, 1966, notified Central Penn that it would no longer make payments to it under the assignment until Central Penn made formal demand upon Mass. Mutual for payment and established the priority of its claim (Exhibit CP-14(d)).

 27. On February 25, 1966 Central Penn made formal demand for payment (Exhibit CP-14(c)), but Mass. Mutual nevertheless made no further payments, and withheld and retained in its own possession commissions due and payable under the General Agency contract with Miller until July 27, 1967, when the accumulated amount thus withheld, $173,845.39, was paid into the registry of this court upon the filing of the within Complaint in Interpleader.

 28. (a) Mass. Mutual had the use and benefit of the sums of money withheld during the period of approximately eighteen months prior to the payment thereof into the registry of the court and, as a matter of equity, it should be charged a fair and reasonable rate therefor.

 (b) To the extent that the payment of such sums to Central Penn would have reduced Central Penn's interest charges, the withholding of such sums has caused loss to the fund.

 (c) A fair and reasonable charge for the use of the sums of money so withheld by Mass. Mutual is the rate of interest payable on the Miller loan to Central Penn during the periods of such withholdings, i.e. 5 1/2% until July 1, 1966, and 6% from July 1, 1966 until July 27, 1967.

 29. By stipulation dated February 29, 1968 and amended by Order dated March 18, 1968 in these proceedings (Document Nos. 56 and 58), the parties agreed that the fund of $173,723.31 in the registry of the court (the fund paid in, $173,845.39, less reimbursement of costs allowed to Mass. Mutual, $122.08), and the additional sums thereafter determined by Mass. Mutual to be due and payable to Miller be paid over to Central Penn and, pending final determination of entitlement to the fund, Central Penn would treat all such payments as payments on account of the principal of the obligation owed it by Miller. It was further stipulated that if Central Penn be determined to be entitled to the sums thus received, no interest would be deemed to have accrued on that portion of the Miller obligation to Central Penn thus paid; but if it be determined that Central Penn pay over any portion of the sums so received, it would pay 5% interest on the amounts to be paid over, and interest on Miller's obligation to Central Penn would be deemed to have accrued in accordance with the terms of the loan agreement.

 30. (a) From the inception of the instant interpleader through July 26, 1973, pursuant to the aforementioned stipulation Central Penn received the sum of $576,038.09 (Exhibit CP-6) which it applied to the Miller obligation as set forth in detail in the schedule #2 which Central Penn prepared and offered as Exhibit CP-7. The court accepts and adopts Exhibit CP-7 as an accurate statement of account with the exception of the amount claimed as counsel fee, which claim will be treated separately hereafter. (b) A brief summary of the account set forth in Exhibit CP-7 discloses the following: (1) Principal balance due on note $550,000.00 (2) Interest on balance of $550,000 from 1/1/66 to 7/1/66 at 5 1/2% 15,209.07 (3) Interest on balance of $550,000 from 7/1/66 to 3/19/68 at 6% 57,475.02 (4) Interest on declining balances of principal, after application of payments received pursuant to stipulation, from 3/19/68 to 1/23/73 43,380.58 $666,064.67 Less: Receipts through 7/26/73 576,038.09 Balance due on principal and interest $ 90,026.58

19740212

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