Skirvin v. Coyle , 185 Okla. 487 ( 1939 )

The order tested by this appeal appointed a general receiver, pending this litigation, of the properties, books and records, of the defendant American Oil Refining Company, an Oklahoma corporation, and hereinafter referred to as the "Oklahoma Corporation." The defendants (plaintiffs in error here) raise two questions in the following language:

"The court committed error in appointing a receiver and refusing to vacate the order.

"First. For that the record shows that the federal court had appointed a receiver of the identical property and that Mr. Fletcher, the federal receiver, had the property and the books and records of the American Oil and Refining Company, the Oklahoma Corporation and the Nevada Corporation."

"Second: Abuse of discretion in appointing a receiver when no proof of need therefor, or property for the receiver to 'receive', was made."

It is necessary to notice essential facts and the general purpose of plaintiffs' action commenced in 1938. The Oklahoma Corporation was organized in 1916. In 1934 the American Oil and Refining Company, a Nevada corporation, was organized, hereinafter referred to as the "Nevada Corporation." The Oklahoma Corporation conveyed all its properties and assets to the Nevada Corporation some years before this suit was commenced and a large majority of the stockholders in the Oklahoma Corporation exchanged their stock therein for stock in the Nevada Corporation, which had the same or almost the same officers.

This suit was commenced in 1938 by Coyle and some 12 other stockholders. They own only a very small percentage of the aggregate stock, but bring this suit for the alleged benefit of themselves and all other stockholders. Some of the plaintiffs had not exchanged their stock for stock in the Nevada Corporation, while some of them had made such exchange.

It is difficult to briefly state the purpose of the suit. The petition is shown on pages 2 to 83, inclusive, of the record with numerous numbered paragraphs and subdivisions of paragraphs. It names as defendants W.B. Skirvin, individually, and as president; O.W. Skirvin, individually, and as vice president; M.A. Luty, individually, and as secretary-treasurer; and Ellsworth Jordan and F.C. Wallower, individually, and as members of the board of directors, respectively, of American Oil and Refining Company, an Oklahoma Corporation: Mrs. Pearl R. Mesta, and Mrs. George Tyson, formerly Mrs. M.S. Adams; and four corporations, to wit: Texahoma Realty Company; Skirvin Operating Company; Skirvin Hotel Incorporated, and Broadway Development Company. Neither the "Oklahoma Corporation" nor the "Nevada Corporation," in which the plaintiffs are stockholders, is named as party defendant. The suit is principally based on numerous alleged wrongful acts of the individual defendants, occurring since 1916, by which it is asserted the individual defendants took advantage of their controlling position, and operated and managed the affairs of the Oklahoma Corporation to and for their personal benefit, and for the benefit of other corporations and other properties in which the Skirvin family was interested. Various prior acts of mismanagement are alleged; such as, that various properties were sold to the Oklahoma Corporation at exorbitant prices by the individual defendants; that items of property were fraudulently conveyed to the individual defendants; that funds of the corporation were wrongfully expended for the benefit of properties individually held and owned; that various sums were diverted from the treasury of the corporation to the other corporation defendants, and that corporate funds were wrongfully expended for the personal benefit of Mr. Skirvin, and in payment of excessive salaries. There are numerous allegations of similar mismanagement resulting in loss to the Oklahoma Corporation, and wrongful gain to the individual defendants. It is alleged that such mismanagement and misconduct continued for most of the 20 years from 1916 to 1936, and culminated in the plan to organize the Nevada Corporation and to wrongfully convey the properties from the Oklahoma Corporation to the Nevada Corporation. Plaintiffs also allege that the sale and transfer of the assets to the Nevada Corporation was invalid and void. The ultimate relief sought by the petition is a judgment for the aggregate sums of money alleged to have been wrongfully taken from the Oklahoma Corporation by the individual defendants; for a lien to be impressed on the properties of the individual defendants and corporate defendants for the money wrongfully diverted from the Oklahoma Corporation to those properties. So that in final analysis the suit is to recover for the stockholders various money judgments against the defendants. The petition also seeks, pending litigation, the appointment of a general receiver.

Prior to the commencement of this action a creditors' suit against the Nevada Corporation had been commenced in the federal district court and that court had appointed a receiver of the assets of that corporation, which were the assets theretofore owned by the Oklahoma Corporation, and in 1934 conveyed and delivered to the Nevada Corporation, together with such additions or increases in assets as had been accumulated by the Nevada Corporation from 1934, when it was organized, and up to 1938, when the creditors' suit was filed and receiver was appointed.

So that when this suit was filed and when the trial court herein made its order appointing a receiver for the assets of the Oklahoma Corporation, that corporation was not in possession of any assets. The parties are not in full accord as to the present status in law of the Oklahoma Corporation. The original 20-year charter of 1916 expired in 1936. There was a renewal of the charter or a revivor of the corporation under section 9713, O. S. 1931, 18 Okla. St. Ann. sec. 1, and section 9732, O. S. 1931, 18 Okla. St. Ann. sec. 17. It is a disputed question whether such renewal of charter or revivor of the corporation is valid. If that revivor is valid, then certain of the individual defendants are in charge of the Oklahoma Corporation as its officers, while if the revivor of the corporation is void, then those individual defendants, being the last officers of the expired corporation, continued in charge as statutory trustees, to wind up the affairs of the Oklahoma Corporation. We do not decide this controverted question, as we deem it unnecessary to do so.

At the hearing in this action, for appointment of receiver, the plaintiffs introduced their petition and rested, thereupon, without further evidence on the part of plaintiffs, the trial court made the order here presented on appeal, appointing a general receiver for the Oklahoma Corporation pending this litigation.

There was testimony offered by the defendants in opposition to the appointment of a receiver. That testimony was offered to explain the transfer of the assets from the Oklahoma Corporation to the Nevada Corporation, and covered the stockholders' meeting at which such transfer of assets was authorized; and explained the surrender of stock in the Oklahoma Corporation and exchange for stock in the Nevada Corporation by various of the plaintiffs in this action and numerous other stockholders. We do not further detail that evidence because we shall consider this matter upon the sufficiency of the plaintiffs' evidence to justify the appointment of the receiver.

Upon these facts the defendants urge that the trial court abused its discretion in appointment of a receiver "when there was no proof of need therefor or property for the receiver to receive," and we think there is controlling merit in that contention. The plaintiffs contend that the Oklahoma Corporation has expired, and that while these individual defendants were officers of that corporation and in charge of its affairs, they committed wrongful acts for which these plaintiffs are entitled to recover a money judgment against the individual defendants and the corporation defendants, and which money judgment they seek to recover for themselves and other stockholders. The Oklahoma Corporation is not a party to this action, that corporation has no assets, and if it had assets at this time, there is no showing of necessity for a general receiver. The petition states necessity for examination of the books and records of the Oklahoma Corporation, but that examination and inspection may be fully had without a general receiver. In oral argument it is pointed out that the plaintiffs contend the sale and transfer of assets to the Nevada Corporation was wholly void and that all those assets should be recovered by and returned to the Oklahoma Corporation, and it was stated in oral argument that a receiver would be necessary to then take charge of those assets and manage them for distribution to the stockholders. If that is the need for a receiver, then this appointment was quite premature; furthermore, this action does not seek to set aside that conveyance or to recover any of those assets from the Nevada Corporation; the Nevada Corporation is not a party to this action. As heretofore pointed out these assets now held by the Nevada Corporation are in receivership and in custody of the receiver in federal court. If these plaintiffs desire to attack the transfer of assets to the Nevada Corporation, surely it will be necessary that they do so in some action in which the Nevada Corporation is a party. Perhaps at the present time it would be necessary for them to so proceed either in the federal court having charge of the receivership or proceed otherwise by permission of that federal court having charge through receivership. At any rate, it is in no manner made to appear that this receivership in this action is necessary as a condition precedent to presentation of the claim of the plaintiffs that the sale and transfer to the Nevada Corporation is void.

While this action involves many details and is complicated, we need not lose sight of the fact that in final analysis this is a suit for money judgment against the named defendants. It is alleged that by certain acts these defendants wrongfully took or received money or benefit from the Oklahoma Corporation. While those acts of misconduct are referred to as mismanagement, we must keep in mind this fact, that said acts of misconduct or mismanagement are alleged to have occurred, all of them, in past years and some of them many years ago, that is, the petition does not allege that at the time of commencement of the suit, the defendants were then engaging in such mismanagement of properties, or affairs of the corporation, as would make it necessary to appoint a receiver to preserve the assets from further dissipation. It has many times been necessary for courts to appoint receivers to prevent further mismanagement or dissipation or diversion of corporate funds or property, in order that the property and assets in their hands might be preserved for the stockholders, but no such situation is presented in this action.

In this case whatever misconduct or mismanagement there was, has long since occurred, that is, has become a final and completed thing, and has resulted in the alleged damage to the plaintiff stockholders, for which upon proper proof they may recover judgment. Here it is not necessary at this time to appoint a general receiver of the Oklahoma Corporation to preserve any assets or properties held by that corporation, for no such assets are held. A receiver in this action is not necessary to preserve or protect the claim of the plaintiffs that the sale and conveyance to the Nevada Corporation is void, because a receiver could not do that in this action, and because no such relief is sought in this action; and because a receiver appointed in this action could not do anything in that regard in any other action which the plaintiffs themselves could not do with equal efficiency without any general receivership of this corporation. Here a general receiver is not necessary as a condition precedent to the testing of the claim of plaintiffs of a right to a money judgment against either or any one of the individual or corporate defendants.

Should there be recovery on the claim of plaintiffs for personal money judgment, or should there be a judgment invalidating the sale and conveyance to the Nevada Corporation, then, and in that event, as it is pointed out, a receiver might be desirable or necessary to receive the fruits of such a judgment and manage or distribute the same, but it would be wholly premature to appoint a receiver at this time for the purpose of providing for either of those future contingencies.

We are impressed with the thought that the trial court must have misunderstood the allegations of mismanagement, and must have concluded that a general receivership was necessary at this time to protect the assets and properties of the Oklahoma Corporation from dissipation by further mismanagement, and did not give sufficient consideration to the fact that in final analysis the purpose of this action is to recover one or more personal money judgments, for alleged specific acts of misconduct, alleged to have resulted in wrongful and unlawful enrichment of the defendants, at the expense of, or to the loss of the Oklahoma Corporation. We are impelled to the conclusion that there was no sufficient proof of need or necessity for a general receivership, or of the existence and possession of property for the receiver to receive, and that the trial court abused its discretion in appointing this general receiver upon the proof presented.

The power to appoint a receiver is a well-recognized power, and it is a power frequently exercised whenever necessary to preserve the status pending litigation or to preserve property or protect property or rights from dissipation pending litigation. But the appointment of a general receiver is in the nature of a harsh remedy and it should not be done except in the case of substantial necessity. Ordinarily a receiver should not be appointed and will not be appointed unless the plaintiff makes a substantial showing that he has rights which will be or may be jeopardized unless a receiver is appointed.

In this case it does not appear that these plaintiffs will or can lose any right or that any right asserted in this action can be jeopardized by the failure of appointment of a receiver. The plaintiffs can surely present their case and submit their claim of right to the court as well without a receiver as they could with a receiver. If the plaintiffs recover a personal money judgment against one or more of the individual defendants, the collection of those judgments will depend on the solvency of the individual judgment debtors, and that would not in any way be affected by the appointment or nonappointment of a general receiver for the assets of the "Oklahoma Corporation." If the plaintiffs recover judgment impressing a lien upon any specific properties of the individual defendants or of the corporation defendants, the collection of those judgments would ultimately depend on the value of the properties upon which any such lien should be impressed, and that would not be affected in any manner by the appointment or nonappointment of a general receiver of the assets of the "Oklahoma Corporation."

In this action the plaintiffs have not directly attacked the validity of the conveyance of assets to the Nevada Corporation by seeking to vacate that conveyance, which of course they could not do in this action, because neither the Nevada Corporation nor the Oklahoma Corporation is a party to this action. In this action the plaintiffs do refer to the alleged invalidity of that conveyance of assets, but they refer to it here only in so far as it could or will affect their claim for a personal judgment against the individual defendants. If these plaintiffs in any court or in any other action should successfully assail that conveyance, and succeed in setting it aside, and by such adjudication its assets and property should be returned to the Oklahoma Corporation, then, if necessity exists for the appointment of a receiver for such properties and assets to preserve them for these plaintiffs and other stockholders, that relief, that is, the appointment of a receiver, could be had at that time and in that court. So that as to that claim of these plaintiffs there is at this time no showing of present necessity in this action for the appointment of a general receiver of the "Oklahoma Corporation."

In the case of Healy v. Steele, 158 Okla. 194, 13 P.2d 140, this court held in paragraph one of the syllabus:

"The exercise of the power to appoint a receiver is a delicate one, and should be exercised with extreme caution and only under circumstances requiring summary relief or where the court is satisfied that there is imminent danger of loss, lest the injury thereby caused be far greater than the injury sought to be averted."

See, also, Sapulpa Petroleum Co. v. McCrary, 4 F.2d 645, and Jackson v. Ward, 111 Okla. 73, 238 P. 429, cited in that opinion as supporting the above quoted rule.

In the case of Bergman Clay Mfg. Co. v. Bergman, 131 P. 485, the Supreme Court of Washington, in paragraphs 1, 2, 4, 8, and 9 of the syllabus, held as follows:

"The power to appoint a receiver should always be exercised with caution.

"A receiver should not be appointed if there is any other adequate remedy.

"While the first object of a receivership is to preserve the assets, the appointment of a receiver to collect unpaid stock subscriptions of a solvent corporation is unauthorized.

"A minority stockholder has the right to inspect and examine the books and records of the corporation at all reasonable times.

"A paid-up stockholder, knowing of a debt due to the corporation other than upon stock or subscriptions, and showing a refusal of the officers of the corporation to bring suit upon demand, may maintain an action therefor without resort to a receivership."

In the body of that opinion it was pointed out that no receiver was necessary for examination of the books because the stockholder plaintiffs had that right which would be enforced by the court without receivership.

In the body of that opinion it was also pointed out that the plaintiff stockholders could bring a suit against another corporation, for the benefit of their own corporation, without resort to a receivership, and in the body of the opinion that court quoted from its former decision in Frost v. Puget Sound Realty Association, 57 Wash. 629, 107 P. 1029, as follows:

"The tendency to appoint receivers at the instance of those who have, for the hope of greater gain, put their money to speculative uses should be checked rather than encouraged."

In the case of Montana Ranches Co. v. Dolan et ux., 164 P. 306, the Supreme Court of Montana, in paragraphs 1, 2, and 5 of the syllabus, held as follows:

"Under Rev. Codes sec. 6698, as to appointment of receiver, the power is to be exercised sparingly and with unusual caution, and only to prevent manifest wrong imminently impending, or where there is no other plain, speedy, or adequate remedy.

"The appointment of a receiver will be denied when the applicant has any other adequate remedy.

"Since the remedy by receivership is an extraordinary one, the applicant has the burden of presenting facts sufficient to disclose to the court a necessity for the remedy."

In the body of the opinion that court said:

"The power to invoke the extraordinary remedy by which property is taken into the possession of the court is to be exercised sparingly, with unusual caution, and only to prevent manifest wrong imminently impending, or where the case shows clearly that the complaining party is in danger of suffering irreparable loss and there is no other plain, speedy, or adequate remedy. Where the application is made, as in this instance, before a decision adjudging the title to be in the applicant, the appointment, if made, amounts in effect to a levy of an execution in limine, entailing costs, expenses, and other hardships often out of proportion to the value of the property right sought to be protected. Hickey v. Parrott S. C. Co., 25 Mont. 164, 64 P. 337. Because of the extraordinary harshness of the remedy, courts of equity have ever been reluctant to apply it. If the applicant has any other adequate remedy, the application will be denied."

In the case of Clark et al. v. National Linseed Oil Co., 105 F. 787, the holding of the U.S. Circuit Court of Appeals, Seventh Circuit, is set out in paragraph 2 of the syllabus as follows:

"A bill filed by stockholders owning but 3 per cent. of the stock of a corporation, making general charges of fraud and misconduct against its officers, and verified as to the incriminating part of such charges only on information and belief, is insufficient, treated as an affidavit, to warrant the appointment of a receiver for the corporation against the wishes of the other stockholders, and a specific denial of the alleged misconduct in the answer, which is positively verified by one having knowledge of the facts; and especially where the real purpose of the bill is to secure the appointment of a receiver who will bring suits against the officers and directors in the name and at the expense of the corporation, where complainants, as individuals, have a remedy by suit in their own names to recover for the losses they may have sustained through the frauds and misconduct of the officers."

In the body of that opinion the court used language somewhat applicable to the facts here as follows:

"The purpose underlying the bill is plain. It is to get control, through a receivership, of the appellee's alleged right of action against the directors, so that such suit can be prosecuted in the name of the appellee, and at its expense. It is admitted that the appellants, as individual stockholders, have already a remedy against the directors for whatever loss they have suffered through the supposed frauds and misconduct; but the court is asked, preliminary to such suit, and as a preparation for it, to transfer the control of the corporation from the accused to the accuser, together with the corporation's cash assets available for the sinews of war. The court is, in effect, asked to prejudge the contest, and upon the bill as an affidavit, to give to the appellants the substantial fruits of victory, before the real contest has begun. We are not satisfied that there is a sufficient showing for so important an order."

In the case of Carey v. Dalgarn Const. Co., Inc.,130 So. 344, the Supreme Court of Louisiana considered a case where minority stockholders sued the defendant directors of the corporation to recover sums of money wrongfully received by the individual defendants from the corporation, and sought the appointment of a receiver for the corporation. That court held in paragraphs 4 and 5 of the syllabus as follows:

"Where majority stockholders pay themselves excessive salaries and illegal commission, minority stockholders' remedy is suit to bring funds back to corporation.

"Where complaining stockholder is not without his remedy for acts complained of, courts will not undertake to manage corporation or appoint receiver."

In the body of that opinion it was pointed out that the stockholders could maintain and prosecute their suit without receivership, and as a supporting authority the court cited Russell v. Ice Co., 118 La. 442, 43 So. 44.

And in the body of that opinion the court said:

"We might cite many authorities to the same effect, but these cited are sufficient to show that the complaining stockholder is not without his remedy for the acts complained of to his prejudice, and, where such is the case, courts will not undertake to manage the affairs of the corporation or to liquidate the same by the appointment of a receiver."

See, also, Checotah Hdwe. Co. v. Hensley, 42 Okla. 260,141 P. 422, and Smith v. Oklahoma Supply Co., 46 Okla. 776,149 P. 879.

In the case of Hallenborg et al. v. Cobre Grande Copper Co. et al., 74 P. 1052, the Supreme Court of Arizona, in paragraphs 2 and 3 of the syllabus, held as follows:

"Where, in an action for the appointment of a receiver for a corporation by stockholders thereof, it appears that the only purpose of the appointment that would be subserved is the bringing of actions on behalf of the corporation, the appointment of a receiver is properly denied, since plaintiffs could themselves bring the actions without the intervention of a receiver.

"That a receiver of a corporation, being in possession of the books and records thereof, would be in a better position to prosecute actions on its behalf than a stockholder, who might be denied an inspection of the books and records, affords no sufficent ground in itself for the appointment."

In the body of that opinion it was pointed out that the stockholder plaintiffs had the right to maintain actions without having a receiver to maintain them, and that plaintiff stockholders had the right to inspect the books and records of the corporation, which right of inspection would be fully protected and enforced by the court without receivership.

In 23 Rawle C. L. page 18, paragraph 12, is pointed out the general rule that the cases in which receivers will be appointed are ordinarily limited to those in which it appears that the appointment is necessary either to prevent fraud or to save the property from injury or a threatened loss or destruction, or in the case of necessity to administer the property for the benefit of all persons interested. And it is there pointed out that the mere fact that the appointment of a receiver will do no harm to the defendant is unimportant in determining the necessity for appointment of a receiver.

Of course every application for receiver must prevail or not upon the facts peculiar to that case, therefore general rules governing receiver appointments in other cases can only be applicable by analogy.

As heretofore stated, we deem it unnecessary to decide the controverted question as to the present legal status of the Oklahoma Corporation. This action does not seek the dissolution of the corporation, nor seek to require the individual defendants as statutory trustees to wind up the affairs of the Oklahoma Corporation as in the case of an expired corporation.

It is our conclusion that the evidence presented to the trial court did not justify the appointment of a general receiver, and the order appealed from must be held to have been an abuse of judicial discretion.

The first proposition presented by defendants in error based upon the possible conflict with the jurisdiction and receivership of the federal district court, which might result from the sustaining of this receivership, is presented with some force; but our conclusion here makes it unnecessary that we deal at any further length with that contention.

The order and judgment appealed from is reversed and the cause remanded, with directions to vacate the order appointing receiver.

BAYLESS, C. J., and DANNER, J., having certified their disqualification, Hon. Frank G. Anderson, of Oklahoma City, and Hon. Joe M. Lynch, of Stilwell, were appointed as Special Justices in their stead.

CORN and GIBSON, JJ., and ANDERSON, Special Justice, concur. OSBORN, J., concurs specially. DAVISON, J., concurs in conclusion. RILEY and HURST, JJ., and LYNCH, Special Justice, dissent.