(dissenting).
I am unable to agree that primary jurisdiction over the securities deposited with the Insurance Commissioner of Iowa rested in the Michigan courts, to the exclusion of independent jurisdiction by the courts of Iowa, and so respectfully dissent.
Had the Iowa deposit been one of mere bailment, with no charge or lien on the securities, I should have no difficulty, naturally, in concurrence. To hold, however, that orderliness in the domiciliary liquidation of a'foreign corporation requires that a sister state be left impotent to prescribe an unsubserviated right of confirming and enforcing a lien created under its laws, upon property located in the state, is to me a bit ominous. Under such a rule, every lien creditor of a foreign corporation, including a mortgagee of real estate, despite his superior rights in the property, must, where insolvency occurs, be regarded as a vagrant suppliant, no matter what fortification the terms of his contract, or the laws of the state under which the lien was created, may have attempted to afford him. State sovereignty, commercial practicality, and the dominant rights of lien position will, I am sure, ultimately compel a retreat from the point of absolutism which has now attritively been reached in our decisions, under the justification of orderly liquidation.
A repetition of some of the salient facts in this case will, I hope, be at least slightly demonstrative.
When the Michigan Company reinsured the risks and took over the assets of the Iowa Company in 1921, the latter had on deposit with the Insurance Commissioner *820of that state securities in an amount equal to the net cash value or legal reserve of its outstanding policies. The Iowa statute imposed this requirement upon all domestic life companies and provided for reserve readjustments by annual policy valuations. It authorized the company, so long as it remained in good standing, to collect the interest and dividends upon the deposited securities and to make approved substitu7 tions. There was a provision, however, that the securities of any defaulting or insolvent company, or one against which the attorney general had instituted receivership proceedings, should “vest in the state for the benefit of the policies on which such deposits were made”, and that the Iowa courts should have jurisdiction to divide the proceeds among the policy holders or apply them to the purchase of reinsurance.
At the time of the transaction with the Michigan Company, the Iowa Company’s policies had printed on their face, “The full reserve on this policy is secured by a deposit of approved securities with the 'State of Iowa”, and a provision in the policy, “The legal reserve on this, policy shall be invested in approved securities and deposited with the State of Iowa as required by law.” The reinsurance agreement between the two companies provided that the transfer of assets should be “subject to the requirements of the statutes of the State of Iowa relative to the deposit with the Commissioner of Insurance of that State of securities representing the net cash value of outstanding contracts”, and that “the deposits required by the laws of the State of Iowa to be made with the Commissioner of Insurance on all contracts * * * re-insured will be now and hereafter maintained at all times, both in amount and character of securities, as would have been required of said American Life Insurance Company, of Des Moines, Iowa, under the laws of said State of Iowa.” The Michigan Company never attempted to rewrite the policies, but simply issued to each policy holder a certificate of assumption, providing that it would “carry out all the provisions of said policy and perform all of the obligations therein contained as fully as the same would or should have been performed by the American Life Insurance Company of Des Moines, Iowa.”
The reinsurance agreement, with its provision for maintaining the deposit of securities in the same manner as was required of the Iowa Company under the statute; was approved by a commission consisting of the Governor, Commissioner of Insurance, and Attorney General of Iowa, and by the Insurance Commissioner of Michigan, in accordance with the respective laws of the two states. The Michigan Company does not appear at any time to have questioned its obligation to maintain the deposit, and it regularly made the necessary adjustments in the amounts of the policy reserves from 1921 until the institution of insolvency proceedings against it in the Michigan courts in 1938.
To me, the transaction simply substituted the Michigan Company for the Iowa Company in the performance of every obligation existing under the Iowa policies and statutes. The right of the Michigan Company to agree to such a segregation of assets seems to me to be conclusively established for the purposes of this case, by the approval of the Insurance Commissioner of Michigan, the company’s acceptance of the assets subject to the condition, and its retention of the benefits of the transaction. That question therefore cannot be regarded as open here. But, whether it would have been ultra vires for the Michigan Company to have agreed to make such an original deposit, the deposit having been set up and maintained under Iowa law, its status after insolvency was and could only be a question of Iowa law.
The statutes of Iowa required a domestic company to deposit securities equal to the net cash value of its policies, for the purpose of providing a protective lien in favor of each individual policyholder. They constituted the Insurance Commissioner a trustee of the assets for this purpose, and, as a matter of administrative facilitation, provided that on insolvency the full legal title should automatically vest in the state. This status and these rights were specifically continued under the terms of the reinsurance agreement. So far as the deposit was concerned, the policies remained in practical effect domestic in character. Even; however, if the deposit had not been grounded on a statutory prescription and a valid recognition of, and agreement to continue, that status, but had been simply a voluntary deposit made by the Michigan Company for the protection of the policyholders of the Iowa Company, it would have had equal significance and effect under Iowa law. State ex rel. Gibson v. American Bonding & Casualty Co., 206 Iowa 988, 221 N.W. 585.
In this situation, the receiver of the Michigan Company clearly can have no *821other right in the matter than to receive any remaining surplus from the securities, after the lien rights have been satisfied, or to claim the reserve apportionment of any policyholders to whose rights he has succeeded by surrender of the policy or by equitable subrogation. It is admitted here that the securities involved are not equal in value to the net cash value of the policies. But, whatever the value of the securities, the rights of the receiver could not in any event have priority over the lien rights for which the Insurance Commissioner was authorized to act.
To say, therefore, that the legislature of Iowa could not provide an independent, substantive method of confirming and enforcing the paramount lien rights existing under Iowa law, without subserviency to the Michigan courts, is to mea denial of the sovereignty of that state. To what extent the policy holders may actually desire to avail themselves of their distributive rights under the Iowa law, in preference to accepting reinsurance privileges in the Indiana Company — which has agreed to take over the Michigan Company’s risks, but with an initial lien of seventy five per cent against the reserves — is for the policy holders themselves or their successors in rights to say in the Iowa proceedings.
The fact that the Iowa Commissioner has been constituted a receiver by the Iowa courts does not involve a basic jurisdictional clash with the Michigan courts, of which cognizance can be taken here. First, as I have pointed out, the rights of the Michigan receiver in the property are clearly subordinate to those of the lien beneficiaries, until the existing liens have been satisfied under Iowa law. Again, any clash between receiverships arises simply out of the method of lien enforcement which the State of Iowa has provided in the situation. On the fundamental question to be considered, the fact that provision has been made for enforcing the liens by a specific receivership does not present any different situation than if a simple action in foreclosure were involved.
Since the Iowa court is not attempting to administer assets as such, but merely to enforce specific local liens, just as might ordinarily be done in a simple foreclosure action, I do not believe that we are able to dispose of this situation on the ground-that the federal courts will not determine questions between conflicting state court receiverships. Indeed, since the decision in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, it seems rather clear to me that in cases resting on mere diversity of citizenship, the federal courts are simply substituting for the state courts and owe the duty of performing all their functions, unless some limitation exists upon their jurisdiction, as, for example, in labor injunction cases. Here, the federal court was simply asked to perform the function of an Iowa state court, in declaring the status of the parties under the Iowa law. This it clearly had jurisdiction to do and owed the duty of doing. No uncertainty could exist under the law of Iowa as to the lien rights against the deposit. The State of Iowa had a sovereign right to provide a substantive means of enforcing these lien rights, to which its laws had given birth, upon property located in its jurisdiction, irrespective of whether any Michigan receivership ever existed. In the exercise of their substituted jurisdiction, it was the duty of the federal courts in this case to declare and give effect to Iowa law in the same manner as the courts of Iowa would have been obliged to do.
I have confined myself to the fundamental question involved without attempting to give consideration to the details of the trial court’s decree.