NEW YORK LIFE INS. CO. v. PANAGIOTOPOULOS, 80 F.2d 136

BINGHAM, Circuit Judge. The decree of April 3, 1935, as of January 7, 1935, transferring the case to the equity side of the court, provided “that the issues raised by the equitable defense shall first be tried, and the case be transferred to the equity docket, and in the meantime that proceedings at law be restrained.” The transfer of the case to the equity side of the court took place on January 7, 1935, and thereafter the case stood “as though an independent suit in equity was brought and the action at law enjoined” [People of Porto Rico v. Livingston (C.C.A.) 47 F.(2d) 712, 720]; and this would be so under

section 274b of the Judicial Code, as amended, even though the decree of April 3, 1935, as of January 7, 1935, had not specifically restrained the action at law. Enclow v. New York Life Ins. Co., 293 U.S. 379, 383, 55 S.Ct. 310, 311, 79 L.Ed. 440. It is there said: “It is thus apparent that when an order or decree is made under

section 274b (28 U.S.C.A. § 398) requiring, or refusing to require, that an equitable defense shall first be tried, the court, exercising what is essentially an equitable jurisdiction, in effect grants or refuses an injunction restraining proceedings at law precisely as if the court had acted upon a bill of complaint in a separate suit for the same purpose. Such a decree was made in the instant case, and therefore, although interlocutory, it was appealable to the Circuit Court of Appeals under

section 129, as amended (28 U.S.C.A. § 227).” The decree of Judge Brewster on April 3, 1935, as of March 14, 1935, vacating the order of January 7, 1935, was likewise appealable under

section 129 of the Judicial Code, as amended (28 U.S.C.A. § 227), as it was an interlocutory order or decree dissolving an injunction, and the appeal therefrom, taken by the defendant within thirty days from the entry of the order or decree, as was done in this case, suspended, pending the appeal to this court, the order or decree vacating the order of January 7, and left the order or decree of January 7, 1935, restraining the proceedings at law, in force. Newton v. Consolidated Gas Co., 258 U.S. 165, 177, 42 S.Ct. 264, 66 L.Ed. 538. The proceedings at law being enjoined by the order or decree of January 7, 1935, and the transfer of the case to equity under

section 274b (28 U.S.C.A. § 398), and that injunction being in existence from the time the appeal was taken, Judge Mc-Lellan acted without right in undertaking to pass upon the questions raised in the action at law before the appeal to this court was disposed of, and his order of April 3, 1935, sustaining the replication or demurrer to the amended answer and the final judgment entered by him on May 6, 1935, are null and void.

The appellant contends, first, that the two-year period within which the policy could be contested by it was extended and kept alive due to the facts alleged in the last paragraph of its amended answer (which are admitted by the plaintiff’s replication or demurrer) ; and, this being so, that it was open to it to allege and show that the policy was canceled, as it prayed in its answer, because of the fraudulent misrepresentations and statements made by the insured in his application, which application was made a part of the contract of insurance.

If the two-year limitation within' which the defendant insurance company could make a contest had expired when the answer or so-called equitable defense to the suit on the policy was filed, it is conceded that the defendant cannot prevail either at law or in equity.

If, on the other hand, it be assumed that the two-year limitation had not expired, due to the fact that the defendant was unable to make a contest from the time the insured, in July, 1930, returned to live in Greece down to the bringing of the suit on the policy, unable to do so in any court in the United States, as an action for rescission is a personal one [New York Life Ins. Co. v. Bangs, 103 U.S. 435, 439, 26 L.Ed. 580; Great North Woods Club v.

Raymond (C.C.A.) 54 F.(2d) 1017, 1018], and there was no one in the United Slates on whom process could be served; and if a judgment of rescission could have been obtained in Greece, it would not have been conclusively effective if pleaded to an action on the policy brought in any court of the United States for lack of reciprocity between the two countries regarding such a matter [Hilton v. Guyot, 159 U.S. 113, 226, 227, 16 S.Ct. 139, 40 L.Ed. 95] — then the question arises whether the answer states an equitable defense or a legal one. In Enelow v. New York Life Ins.

Co., 293 U.S. 379, 55 S.Ct. 310, 79 L.Ed. 440, the Supreme Court held that an answer setting up a defense of the same character as the one here in question was a legal one and the transfer of the suit to the equity side of the court for trial was erroneous; and that the plaintiff had a right to the trial of his case by a jury.

The defendant, however, contends that, although the policy there sued upon contained a clause rendering the policy incontestable after two years and a suit at law had been brought upon the policy and an answer or so-called equitable defense had been filed within the two-year period, still, inasmuch as the plaintiff was at liberty and had the right, before a jury was impaneled, to dismiss his suit and not bring a new one on the policy until after the two-year period had expired, the defendant in the Enelow Case and in this case had an equitable defense. New York Life Insurance Co. v.

Seymour, 45 F.(2d) 47, 48, 73 A.L.R. 1523 (C.C.A.6thCir.); Harnischfeger Sales Corporation v. National Life Ins. Co., 72 F.(2d) 921, 925 (C.C.A.7thCir.). But see New York Life Ins. Co. v. Miller (C.C.A.) 73 F.(2d) 350, 355, 97 A.L.R. 562. In other words, the Supreme Court erred in reaching the conclusion that it did in the Enelow Case.

It may be that the equitable feature of the answer in the Enelow Case, and here contended for by the defendant, was not brought to the attention of the Supreme Court in that case; but if we assume that the contestable period of' the policy here in question was extended by virtue of the facts alleged in the. defendant’s plea, so •that 'at the time the answer was filed the two-year period as extended had not expired, the other facts (those of intentional misrepresentation) alleged in the answer in this case do not differ in any material respect from those alleged in the answer in the Enelow Case, and we feel constrained to follow that decision whether otherwise we would or would not entertain a different notion. ■ The order or decree of the District Court of April 3, 1935, as of March 14, 1935, vacating the prior order as of January 7, 1935, is affirmed.

The order of the District Court of April 3, 1935, sustaining the demurrer to the amended answer, and the final judgment of May 6, 1935, are vacated and set aside, and the case is remanded to the District Court for further proceedings not inconsistent with this opinion.