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MICHAEL v. ST. PAUL MERCURY INDEMNITY CO.

August 11, 1950

MICHAEL
v.
ST. PAUL MERCURY INDEMNITY CO.



The opinion of the court was delivered by: John E. Miller, District Judge.

Plaintiff alleges that he was injured as the result of certain negligent conduct on the part of employees of St. Edwards Hospital; that St. Edwards "is a non-profit association not subject to an action for tort under the laws of the State of Arkansas"; that the defendant has issued a policy of liability insurance to St. Edwards, and by virtue of Ark.Stats. 1947, Sec. 66-517, he has a direct cause of action against said defendant insurance company.

Defendant has filed a motion to dismiss alleging that St. Edwards is directly responsible for the torts of its employees and, therefore, Sec. 66-517 is inapplicable with the result that suit must be against St. Edwards rather than it; that said Sec. 66-517, wherein it attempts to authorize a suit directly against an insurance carrier, is unconstitutional as violative of the Due Process Clause and the Equal Protection Clause of the 14th Amendment to the Constitution of the United States as well as Art. 1, Sec. 10, the contract clause; and that said section is violative of the Due Process and Equal Protection Clauses of the Constitution of 1874 of the State of Arkansas, Art. 2, §§ 3, 8.

In considering the motion the court must treat all proper and material allegations as true and should not dismiss "unless it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved in support of the claim." Dennis et al. v. Village of Tonka Bay et al., 8 Cir., 151 F.2d 411, 412.

Sec. 66-517 provides that an injured person shall have a direct cause of action against the liability insurance carrier of "any co-operative non-profit corporation, association or organization or * * * any other organization or association of any kind or character, not subject to suit for tort."

Plaintiff has alleged that St. Edwards Hospital is a charitable non-profit organization, and this allegation will be accepted as true for purposes of this motion. Thus, it follows that if, under the law of Arkansas, a charitable non-profit organization is not subject to suit for tort, plaintiff may proceed directly against the defendant under Sec. 66-517. The constitutional questions will be reached only if Sec. 66-517 is found applicable to the case.

The leading case in Arkansas is Fordyce v. Woman's Christian National Library Association, 79 Ark. 550, 96 S.W. 155, 7 L.R.A., N.S., 485, wherein the court held that the property of a charity cannot be sold under execution issued on a judgment rendered for the tort of its agents or trustees. The case was treated as one of a charitable trust, and the public library association involved therein qualified as such. Recognizing the divergent views on the subject, the court in the Fordyce case, supra, took the unqualified position that in this state the property of a charity cannot be sold under execution, and in the course of the opinion, 79 Ark. page 561, 96 S.W. page 159, said:

"The immunity of the property of a charity from sale under execution rests on special grounds. The property of a corporation organized solely for charitable purposes is exclusively dedicated to public uses. * * * If the doctrine of respondeat superior is applied to them (trustees) it follows that along with their other powers, they possess an implied power to destroy, by a willful violation of their duties, by collusion, or by negligence, the public interests that they are selected to preserve. Any conclusion that tends to support that view must leave out of consideration the public; that is to say, the party most deeply interested. To say that the trustees may by their negligence destroy the charity is simply to say that they may do indirectly and by inadvertence what they cannot do directly. The doctrine that the principle of respondeat superior has no application to this class of cases when the trustees willfully abuse their authority, and that it does apply in a single species of negligence, would seem to be merely the result of another effort to find a compromise. Nor do we think that an illogical compromise of that sort would tend to the public advantage. A judge or a jury might be convinced, after a case of negligence had occurred, that due judgment and discretion had not been used in the selection of experts and other agents, when perhaps they themselves, if put to it, in a similar case, would do no better, and might do worse; and it seems to us that if our schools, churches, hospitals, and other charities could be sold out on such vague matters of opinion, about which men would naturally differ, the result would be extremely unfortunate."

Thus, at the time of this decision, the Arkansas Supreme Court was committed to the doctrine that neither a stranger to nor a person receiving benefits under a charitable trust could reach the trust property whether or not the trustee was personally at fault. It is true that the court did not hold that the charitable association could not be sued in the first instance. The facts of the case did not require a decision of that question. The trustees were then and are now personally answerable for their own torts, as are their employees. But, a charitable corporation, as St. Edwards is alleged and here assumed to be, is operated on a non-profit basis and all of its funds are committed to the operation and furtherance of its charitable purpose. There is no fund set aside or available for the payment of tort damages. If it were otherwise the corporation could not qualify as charitable. According to the complaint, this insurance policy was issued to indemnify the hospital, not its officers or the Board of Directors or the employees. And, to say that although the trust fund of the corporation cannot be reached on execution, and, therefore, absolutely nothing realized from a judgment for tort, nevertheless a judgment may be obtained, is, in the opinion of the court, unrealistic and impractical reasoning.

The Fordyce case, supra, has not been overruled and has been cited with approval repeatedly. No case in Arkansas has been found by the court, and none has been called to its attention, indicating a departure from this doctrine. In Arkansas Valley Cooperative Rural Electric Co. v. Elkins, 200 Ark. 883, 141 S.W.2d 538, 541, the Arkansas Supreme Court held that a non-profit cooperative corporation could not be held liable for the tort of an employee, Ark.Stats. 1947, Sec. 64-1525, hereinafter discussed, may dictate a contrary result in the case of such cooperatives now. In so holding the court pointed out that the funds created by non-profit sharing corporations are in the nature of trust funds, and specifically referred to the Fordyce case, supra, as authority for "[denying] liability of such (charitable) corporations in tort actions." It is noteworthy that the statute under which the cooperative was organized enumerated among the corporate powers "To sue and be sued, complain and defend, in its corporate name", Pope's Dig. § 2318, and in disposing of the case, the court observed that whereas it could be sued to enforce contracts, it could not be made to respond in tort, because the statute conferred no such authority. This distinction was made in another Arkansas case, Arkansas Baptist College et al. v. Wilson, 200 Ark. 1189, 138 S.W.2d 376, 377, wherein it was held that Arkansas Baptist College, incorporated under Ark.Stats. 1947, Sec. 64-1301 et seq., was subject to suit on contract under the provisions of the statute and its articles of association, but pointed out that "if this were an action to recover for the tort of the trustees, then appellants would be protected under the doctrine of the Fordyce case, supra."

Chapter 13, Ark.Stats. 1947, Secs. 64-1301 to 64-1312, inclusive, prescribes the manner of organizing benevolent and mutual benefit corporations. It specifically refers to schools, colleges, medical, mechanical, agricultural or other associations "organized for the promotion of literature, education, science or art, or any association organized for the promotion of bodily or mental health."

Sec. 64-1306 provides, inter alia: "Such corporation and association shall have the capacity of suing and being sued and is authorized to do any and all things necessary, convenient, useful or incidental to the attainment of its purposes as fully and to the same extent as natural persons lawfully might or could do, as principals, agents, contractors, trustees or otherwise."

The defendant contends that this provision makes St. Edwards subject to a suit for tort, but such provision applies only to contracts or other acts necessary to be done by the association or corporation for the execution of the objects of its organization and does not authorize a suit against the hospital in this case for it or its employees' tort.

Defendant also relies upon Ark.Stats. 1947, Sec. 64-1525, Acts of 1947, No. 362, which provides that: "All cooperative corporations and associations heretofore or hereafter organized under the laws of the State of Arkansas shall hereafter be liable and subject to being sued in the courts of the state for their torts resulting from the negligent acts or their agents, servants and employees committed in the scope of their employment for said cooperatives."


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