State ex rel. Sorensen v. State Bank

Rose, J.

This is a controversy over the appointment of a successor to a receiver who had been engaged in liquidating the affairs of the State Bank of Minatare, an insolvent corporation.

in a proceeding in the district court for Scotts Bluff county, Clarence G. Bliss, secretary of the department of trade and commerce, the branch of government having supervisory control of state banks, was appointed receiver May 31, 1929, and was directed by judicial order to wind up the affairs of the State Bank of Minatare. He qualified and entered upon the performance of his duties, but, during the course of liquidation, resigned as receiver, submitted his final report as such to the district court and, November 2, 1931, applied for an order approving it, releasing his bond and discharging him. On that date E. H. Luikart, who became secretary of the department of trade and commerce July 8, 1931, made in that capacity an application to be appointed receiver in place of Bliss. Upon a hearing on both applications, the trial court approved the final report of Bliss, released his bond, discharged him as receiver, overruled the application of Luikart, and appointed A. E. Torgeson, the latter having been assistant receiver under Bliss. Luikart appealed to the supreme court.

The propositions argued on appeal by counsel for Luikart seem to be about as follows:

The former method of liquidating insolvent state banks by means of individual receiverships in the district courts was superseded in 1929 by legislation transferring that function of government to the department of trade and commerce. Comp. St. 1929, secs. 8-181, 8-191, 8-194. The statute now requires liquidation by that department and gives it possession of the corporate assets. Under the present system of liquidation the secretary of the department of trade and commerce is the sole receiver of insolvent state banks and district courts are without power to appoint any other person. Comp. St. 1929, sec. 8-192. Under the administrative code the governor controls the secretary of the department of trade and commerce and in the last analysis supervises and controls the liquidation of insolvent state banks, the legislature having abolished judicial liquidation and substituted therefor executive liquidation. Receiverships for insolvent state banks are authorized and controlled by special provisions of statute to which equity power to appoint and direct receivers generally does not apply. Luikart is the receiver designated by law and the judicial attempt to appoint Torgeson was unlawful and void. The order appointing Torgeson is contrary to contemporaneous judicial and executive construction of the present statutes relating to the liquidation of insolvent state banks.

The foregoing propositions were presented at the bar and argued at length in briefs containing excerpts from both statutes and judicial opinions. The solution of the problems thus presented depends principally upon the proper answer to this question: Is the liquidation of insolvent state banks an executive, as distinguished from a judicial, function?

The statutes nowhere provide for the liquidation of insolvent state banks without invoking the judicial power of the state government. The legislature never granted to any executive officer, administrative board, department or tribunal authority to wind up the affairs of an insolvent state bank without the aid of a court. The law is that the secretary of the department of trade and commerce shall report insolvency of a state bank to the attorney general who shall apply to the district court for a decree determining such insolvency and for the appointment of a receiver. Comp. St. 1929, sec. 8-190. The statute requires notice, a hearing and a finding upon evidence in the proceeding for a judicial determination of insolvency. Comp. St. 1929, sec. 8-190. When liquidation is judicially ordered the decree shall place the bank assets in the hands of the secretary of the department of trade and commerce “and liquidation shall thereafter be had under order of court in the manner provided by law.” Comp. St. 1929, sec. 8-193. The secretary of the department of trade and commerce conducts the liquidation, but he is required to do so in court. Comp. St. 1929, sec. 8-193. Legislation on this subject makes liquidation a judicial proceeding rather than an exclusive executive function. No doubt the legislature has power to create an executive or administrative board with power to liquidate the affairs of insolvent state banks independently of the judiciary, but legislation of that kind has not been enacted in Nebraska. Acts so providing have been passed in other states and cases cited by Luikart are more applicable thereto than to the statutes now under consideration.

Both before and after the banking laws were changed in 1929 the executive department, through the attorney general, uniformly applied to the district courts for decrees determining the insolvency of state banks and for the appointing of receivers. This has been the universal practice. The applications have been made to and the proceedings conducted in courts of equity. In the exercise of equity jurisdiction district courts have rendered decrees determining insolvency; appointing receivers and directing them to take possession of bank assets; ordering the bringing of suits for the collection of debts; construing and enforcing contracts; settling controversies between receivers and claimants; passing on reports; ordering distribution of dividends to depositors and other creditors; restoring converted trust funds to beneficiaries; requiring litigation to enforce liability of stockholders; making all other orders essential to liquidation; closing receiverships. These are well-understood proceedings in equity and are inconsistent with executive liquidation. The lawmakers themselves provided for judicial liquidation. The statutes will admit of no other interpretation.

In the present proceeding the state on the relation of the attorney general invoked by petition the power of the district court for a determination of the charge that the State Bank of Minatare was insolvent and was jeopardizing the interests of its depositors. There was a prayer for the appointment of a receiver to take charge of its assets and wind up its affairs. Upon notice, hearing and evidence a judgment conforming to the prayer of the petition was entered. This was a final decree in the sense that it was appealable. Comp. St. 1929, sec. 20-1090; McCord, Brady & Co. v. Weil, 33 Neb. 868. By it Clarence G. Bliss, secretary of the department of trade and comxnerce, became receiver. He acted in that capacity under judicial orders from May 31, 1929, until November 2, 1931. Between those dates Bliss was the qualified officer through whom the department of trade and commerce functioned and he was also receiver, a judicial officer performing his duties as such under orders of the court. In the meantime the governor removed Bliss as secretary of the department of trade and commerce and in his place, July 8, 1931, appointed E. H. Luikart who qualified and entered upon his executive duties. Counsel for Luikart insist that consequently the district court was required to appoint him receiver of the State Bank of Minatare under the following enactment of the legislature:

“The secretary of the department of trade and commerce shall be the sole and only receiver of failed or insolvent banks, and shall serve as such without compensation other than his compensation as secretary of said department.” Comp. St. 1929, sec. 8-192.

Is this a mandatory statute requiring the judicial department of government to appoint the secretary of the department of trade and commerce “the sole and only receiver” in literal compliance with the statutory provisions quoted, as argued on appeal herein? If so the executive appointment and the act of the legislature require modification of the judgment of the court of equity in the pending proceeding, without regard to the exercise of judicial power, by substituting one receiver and officer of a court for another. Is the person appointed by the court as receiver to liquidate an insolvent state bank removed whenever the governor retires the secretary of the department of trade and commerce? If such a secretary refuses to act or becomes disqualified or makes default, is judicial action in a pending receivership suspended until the governor makes a new appointment? In the event of such contingencies is the court without power to remove a receiver and appoint another? These questions answer themselves in the negative. In a pending cause the chief executive and the legislature cannot change or modify judicial orders or lawfully require the court to do so. A judicial order in pending litigation does not change with political fortunes or legislative acts or executive appointments. In a cause properly before a court of equity for determination the appointment of a necessary receiver is a judicial function. State v. Farmers & Merchants Ins. Co., 90 Neb. 664. This appointing power came from the Constitution—a higher source than an act of the legislature. Const. art. V, sec. 9; Matteson v. Creighton University, 105 Neb. 219 ; Burnham v. Bennison, 121 Neb. 291; State v. Farmers State Bank, 121 Neb. 532; State v. State Bank of Touhy, 122 Neb. 582. On high authority it was recently held that the legislature cannot compel a court to admit to the bar a person deemed by the judiciary to be unfit to exercise the prerogatives of an attorney at law, a court officer. State v. Cannon, 240 N. W. (Wis.) 441. In an opinion relating to the appointment of supreme court commissioners the supreme court of Nebraska in a unanimous opinion said:

“Neither the legislature nor the governor has the right to dictate whom the court shall appoint as its referees or assistants. The court might as well assume to appoint the. chief clerk or sergeant-at-arms of each house of the legislature.” In re Supreme Court Commissioners, 100 Neb-426.

French legislators once imprisoned judges for failure to comply with the legislative will. Montesquieu suggested a. government with legislative, executive and judicial departments, each independent of the other. The framers of the American Constitution and the people of Nebraska, adopted that plan. It has been regarded by statesmen and. philosophers as an outstanding advancement in the science, of government. Throughout the judicial history of the. present system the courts have scrupulously respected the. prerogatives of the legislative and executive departments, and extended to them the comity due to governmental divisions of equal rank, but courtesy does not extend to the surrendering of judicial power. It is an imperative duty of the judicial department of government to protect its. jurisdiction at the boundaries of power fixed by the Constitution.

Legislation that “The secretary of the department of trade and commerce shall be the sole and only receiver of failed or insolvent banks” amounts to no more in a judicial proceeding in a court of equity than a legislative recommendation to the judiciary to appoint him in the interests of economy and business management. Otherwise the enactment would be an unconstitutional encroachment on a judicial prerogative.

The district court gave reasons for appointing Torgeson instead of Luikart. After finding that Bliss had faithfully performed his duties as receiver of the State Bank of Minatare and had accounted for all the assets thereof, the district court made the following findings as shown by the judicial record:

“The court further finds that A. E. Torgeson is now the assistant to the receiver in charge of the liquidation of said bank and is familiar with the condition of all the assets and work in connection with the liquidation of said trust and is a proper and fit person to be appointed receiver of the State Bank of Minatare; that he is now in possession of said assets and has receipted in court for the same.”

There is nothing in the record to show that this finding and the resulting appointment of Torgeson were erroneous or illegal or inequitable or unjust or inimical to the best interests of the depositors and other creditors. The trial court acted within its powers on sufficient evidence. No reason for a reversal has been pointed out or found.

Affirmed.