State Ex Rel. Warren v. Douglass

This is an application for a writ of prohibition against Honorable Frank P. Douglass, judge of the district court for the 13th Judicial district, sought by R.B. Warren and Royce Savage, who allege that they are the duly appointed and qualified receivers for the Southwest Company, an Express Trust, appointed by a judge of the district court of Tulsa county, on the 13th day of June, 1938, in an action wherein Warren Robinson Drilling Company, a corporation, was plaintiff, and the Southwest Company, an Express Trust, and the trustees thereof, were defendants. It is alleged that upon their appointment they went into possession of all of the property of the. Southwest Company, an Express Trust, and they took into their possession and were operating certain oil producing properties belonging to said trust in Oklahoma county; that with knowledge of the appointment of said receivers, the respondent on August 22, 1938, without notice to these applicants, in an action wherein Hubert E. Bale was plaintiff and the Southwest Company, an Express Trust, and others were defendants, appointed one F.R. Henson as receiver of said oil properties in Oklahoma county, and that the said F.R. Henson was threatening to interfere with the possession of said property by these receivers, and that there was an intolerable conflict between the jurisdiction of the district court of Tulsa county and the district court of Oklahoma county which this court should prohibit by proper writ; that a special appearance had been made in the district court of Oklahoma county by these receivers challenging the jurisdiction, power, and authority of said court and of its receiver, which challenge had been denied by the district court of Oklahoma county.

It is conceded that the sole question to be determined herein is whether or not the district court of Tulsa county had jurisdiction to appoint said receivers, and that if it be determined that such jurisdiction existed, a writ of prohibition should issue; otherwise, it should be denied.

Looking to the allegations of the petition filed in the district court of Tulsa county, we find that Warren Robinson Drilling Company alleged that it was a simple contract creditor of the Southwest Company, an Express Trust, by virtue of a certain $30,000 note payable in installments, endorsed by way of further security by W.E. Brown and A.J. Diffie, two of the trustees of said trust, on which default had been made in the payment, and a further note of $9,899.48, executed by said trust and likewise endorsed and likewise defaulted. As a third cause of action the plaintiffs allege that said trust, the Southwest Company, an Express Trust, was insolvent and unable to pay its debts as they matured; that it owned three separate parcels of land in Oklahoma county on which there was one producing well on each tract; that numerous bills for drilling and equipping said wells were unpaid and various parties had mechanics' and materialmen's liens on each of said wells and leases, and that several of said lien claimants were threatening to file foreclosure proceedings to foreclose their respective liens; that although said wells were producing only from 80 to 100 barrels of oil per day, said wells have not been properly completed and are not being properly cared for by reason of lack of funds to properly clean out and operate said wells, and that the trustees are unable to obtain further credit and cannot obtain the necessary funds with which to properly produce said wells; that by proper operation the production of said wells will be greatly increased and that the income will be sufficient to more than pay all creditors in full; that a receiver is necessary in order properly to conserve said property and manage same to produce income which said properties are capable of producing and in order that the claims of creditors and their priority may be determined without excessive cost and fees. The trustees admitted the indebtedness, the default thereof, and their inability by reason of insufficient funds to pay their creditors, and joined in the request for appointment of a receiver. The principal place of business of said trust, the Southwest Company, was at Tulsa and all of the defendants resided within Tulsa county. On oral argument herein it was stated that the indebtedness of the company, both secured and unsecured, exceeded $200,000.

Respondent contends that the allegations of plaintiff's petition for the appointment of a receiver in the district court of Tulsa county are wholly insufficient to invoke the equitable jurisdiction of the court to appoint a receiver in that it is shown that plaintiff is a simple contract creditor who has not procured a judgment; that he has no lien on or interest in said property over which a receiver is sought and that under the provisions of section 773, O. S. 1931, no statutory ground for the appointment of a receiver is contained within the allegations of said petition.

On collateral attack, as is the present proceeding, we are confined to an examination of the allegations of the petition as to the relief sought. Kedney v. Hooker, 144 Okla. 148,289 P. 1108. But even though the allegations of said petition were imperfect, if they were sufficient to "set the judicial mind in motion," or to "challenge a judicial inquiry," they will be held sufficient to invoke the jurisdiction of the court. Shields v. Coleman, 157 U.S. 168, 15 S. Ct. 570; Utah Ass'n of Credit Men v. Budge (Idaho) 102 P. 390; People's Bonded Trustees v. Wight (Utah) 272 P. 200; Superior Oil Corp. v. Matlock (10th C. C. A.) 47 F.2d 993; Freeman on Judgments, vol. 1, sec. 365; Welch v. Focht (1918) 67 Okla. 275, 171 P. 730; Wagner v. Lucas (1920) 79 Okla. 231, 193 P. 421; McDougal v. Rice (1920) 79 Okla. 303, 193 P. 415; Lindeburg v. Messman (1923) 95 Okla. 64, 218 P. 844; Abraham v. Homer (1924)102 Okla. 12, 226 P. 45; Fowler v. Marguret Pillsbury General Hospital (1924)102 Okla. 203, 229 P. 442; Foster v. Focht (1924) 102 Okla. 261,229 P. 444; Howard v. Duncan (1933) 163 Okla. 142, 21 P.2d 489; Goldsmith v. Owens (1937) 180 Okla. 268, 68 P.2d 849; Cherry v. Goddard (1936) 179 Okla. 158, 64 P.2d 315; Ogilvie v. First Nat. Bank (1937) 179 Okla. 111, 64 P.2d 875; 34 C. J. 560; 15 Rawle C. L. 864; Black on Judgments, sec. 269; L. R. A. 1916E, 316, case note.

Chapter 16 of the Session Laws of 1919 (sec. 11820, et seq., O. S. 1931), authorized the creation, formation, and operation of express trusts as business enterprises. Section 11823, O. S. 1931, provides:

"Liability to third persons for any act, omission, or obligation of a trustee or trustees of an express trust when acting in such capacity, shall extend to the whole of the trust estate held by such trustee or trustees, or so much thereof as may be necessary to discharge such liability, but no personal liability shall attach to the trustee or the beneficiaries of such trust for any such act, omission or liability."

By section 773, O. S. 1931, a receiver may be appointed:

"First: In an action * * * by a creditor to subject any property or fund to his claim, * * * and where it is shown that the property or fund is in danger of being lost, removed or materially injured. * * * Sixth: In all other cases where receivers have heretofore been appointed by the usages of the courts of equity."

High on Receivers (4th Ed.) page 847, section 692:

"The appointment of receivers is frequently necessary in cases of trusts, either express or implied, as against trustees and persons occupying fiduciary relations, and the principles governing this branch of the subject may be appropriately referred to the general jurisdiction of courts of equity over trusts. Strictly speaking, many of the cases in which relief is granted by appointing a receiver over corporations are dependent to a considerable degree upon the doctrine of trusts, the officers of a corporation occupying a fiduciary relation toward its shareholders and creditors, and the abuse of their trust constituting a frequent ground for the interference of equity by a receiver. * * *"

23 Rawle C. L. sec. 28:

"In order to justify the appointment of a receiver for trust property, there must be either misconduct, waste, mismanagement, misapplication, or improper disposition of the trust fund, or a denial or destruction of the trust estate by the trustee. But where the property, by any of these acts, becomes endangered or placed in a state of insecurity, which due care or conduct would have prevented, it is proper to appoint a receiver for the trust estate, to preserve it from loss, whatever the nature of the plaintiff's right and whatever may be the nature of the property. * * *"

Section 267 of the Restatement of the Law of Trusts is as follows:

"A person to whom the trustee has incurred a liability in the course of the administration of the trust can by a proceeding in equity reach trust property and apply it to the satisfaction of his claim under the circumstances stated in sections 268-271."

In the comment under this section is found the following language:

"4. If it was agreed between him and the trustee that the trustee should not be personally liable upon a contract, but that he should look only to the trust estate, he can by a proceeding in equity reach trust property and apply it to the satisfaction of his claim upon the contract, provided that the contract was properly made by the trustee in the administration of the trust."

Paragraph B, section 267, Restatement of the Law of Trusts, is as follows:

"The remedy of a creditor under the rule stated in this section is by a proceeding in equity against the trustee in his representative capacity to compel the application of the trust property to the payment of his claim. This proceeding can be maintained against the trustee who incurred the liability or against a successor trustee in his representative capacity. If a judgment is given against a trustee in his representative capacity only, the judgment cannot be enforced against him personally."

Section 271 of the Restatement, aforesaid, is as follows:

"If the trustee makes a contract with a third person and the contract provides that the trustee shall not be personally liable upon the contract, but that the third person shall look only to the trust estate, the third person can by a proceeding in equity reach trust property and apply it to the satisfaction of his claim upon the contract, provided that the contract was properly made by the trustee in the administration of the trust."

The petition in the case wherein the plaintiff receivers were appointed alleged that the trust estate was insolvent and in danger of being lost or materially injured by reason of the inability of the trustees to properly operate the properties and because of threatened multiplicity of foreclosure proceedings; that the entire trust property was liable by virtue of statute for the indebtedness contracted by said trustees on behalf of said trust estate, and the trustees, by virtue of statute, were relieved from any personal liability. Whether the mismanagement of said estate arose through willful misconduct or through mere inability, financial or otherwise, to husband, safeguard, protect, and preserve the property of said trust, is not subject to inquiry on collateral attack, but would be material only in invoking the judicial discretion in the original appointment. We hold that the allegations of the petition were sufficient on collateral attack to sustain the jurisdiction of the district court of Tulsa county in making said appointment under the first and sixth subdivisions of section 773, O. S. 1931. See Ellis v. Panther Oil Gas Co.,171 Okla. 552, 43 P.2d 423; Cameron v. White, 128 Okla. 251,262 P. 664. We find nothing in the case of Fleet v. Hooker,178 Okla. 640, 63 P.2d 988, nor in Oklahoma Fullers Earth Co. v. Evans, 179 Okla. 124, 64 P.2d 899 nor in State v. Prairie Cotton Oil Co., 180 Okla. 608, 71 P.2d 988, which is in conflict with this view.

We have here a striking example of conflict between courts of concurrent jurisdiction. It definitely approaches that intolerable conflict which has often called for the intervention of higher courts by writ of prohibition. Here each court has appointed a receiver covering properties of the business trust. First, the Tulsa county district court appointed a receiver and he took possession of these properties. Thereafter the Oklahoma county district court appointed a receiver and he is attempting to take over certain of the properties from the Tulsa county receiver. Obviously many matters might be presented here on appeal which should not be considered, or should not control, in this proceeding for the relief here sought. We must assume the prior order of the Tulsa county district court is correct until it is challenged here on appeal.

Writ granted.

BAYLESS, C. J., WELCH, V. C. J., and CORN, GIBSON, HURST, and DAVISON, JJ., concur. RILEY and DANNER, JJ., dissent.