57 F.2d 951 (8th Cir. 1932), 9352, Saetre v. Chandler

Docket Nº:9352, 9374.
Citation:57 F.2d 951
Case Date:April 25, 1932
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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57 F.2d 951 (8th Cir. 1932)

SAETRE et al.





F. E. SATTERLEE CO. et al.

Nos. 9352, 9374.

United States Court of Appeals, Eighth Circuit.

April 25, 1932

         Appeal from the District Court of the United States for the District of Minnesota; John B. Sanborn, Judge.

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         Ray Quinlivan, of St. Cloud, Minn. (Alex Janes, of St. Paul, Minn., and P. L. Solether, Claude G. Krause, and Glen S. Stiles, all of Minneapolis, Minn., on the brief), for appellants Saetre and others.

         F. H. Peterson, of Moorhead, Minn., for appellant Christenson.

         N. F. Field and Cyrus A. Field, both of Fergus Falls, Minn., for appellant Melby.

         Thomas Vennum, of Minneapolis, Minn. (Gates A. Timerman, of Minneapolis, Minn., on the brief), for appellee Chandler, as receiver.

         Before VAN VALKENBURGH, Circuit Judge, and DAVIS, District Judge.

         VAN VALKENBURGH, Circuit Judge.

         January 23, 1929, in the District Court of the United States for the District of Minnesota, receivers were appointed for the Diamond Motor Parts Company at the suit of F. E. Satterlee Company, a creditor. The receivers originally appointed were M. D. Chandler, appellee herein, F. E. Satterlee, and E. J. Smith. Subsequently Satterlee and Smith resigned and were discharged, leaving appellee Chandler as sole receiver. July 9, 1931, Receiver Chandler filed in the receivership suit a petition for order assessing stockholders. This petition of the receiver was granted and an assessment of 100 per cent. ordered September 30, 1931. It is from this order that the above-entitled appeals are taken.

         In cause No. 9352 twenty-two assignments of error are relied upon. They proceed from several defendant stockholders, and contain a number of duplications and restatements of the same proposition in different form. The points really argued and presented for the court's consideration are therefore reduced to four:

         1. That the proof tendered by the receiver is wholly insufficient to warrant or justify any order assessing stockholders.

         2. The court erred in granting the motion of the receiver to strike the testimony of Thomas Kernan, a witness for appellants, at the close of the hearing.

         3. Section 3 of article 10 of the Constitution of the State of Minnesota provides that: 'Each stockholder in any corporation, excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business, shall be liable to the amount of stock held or owned by him.' And it is urged that the articles of incorporation of the Diamond Motor Parts Company are such as to bring that company within the exception.

         4. Irrespective of the foregoing assignments, 'there should have been no order of assessment of stockholders for the reason that by the 1930 amendment to the Constitution of the State of Minnesota the rights of the Receiver and all creditors of the corporation to pursue a superadded liability against stockholders no longer exist and are wholly lost.'

         In cause No. 9374 but one error is assigned, to wit: 'The Court erred in holding that the Articles of Incorporation of the defendant company did not disclose that it was exclusively a manufacturing and mechanical corporation and that its stockholders were exempt from double liability under the provisions of the Constitution of the State of Minnesota.' In this case the regularity and sufficiency of the proceedings otherwise are not disputed.

         The remedy for the establishment and enforcement of the constitutional liability of stockholders is provided by sections 8025 and 8026 of Mason's Minnesota Statutes for 1927, and by section 8027 of said statutes as amended by chapter 205, § 1, of the Minnesota Laws for 1931, as follows:

         '8025. Enforcement of stockholders' liability--Hearing--Notice of--Whenever it shall be made to appear by the petition of a receiver or assignee of a corporation, or of any creditor thereof whose claim has been filed, that any constitutional, statutory, or other liability of stockholders or directors or both exists, and that it is necessary to resort to the same, the court shall appoint a time for hearing, not less than thirty nor more than sixty days thereafter, and order such notice thereof to be served on each person against whom such liability is claimed in the same manner a summons is served in a civil action, and said notice shall also be published as the Court shall order. That such notice shall specify in a general way the nature of

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the liability claimed in the petition and the amount thereof against the person upon whom it is so served. Whenever the receiver is not the petitioner, personal notice shall be given to him.

         '8026. Same--Hearing--Evidence--Order for Assessment--Upon such hearing, after proof of due service of notice, the court shall receive and consider such evidence by affidavit or otherwise as may be presented by the receiver, or by any creditor, officer, or stockholder, appearing in person or by attorney, but such evidence shall be the best available under the circumstances of each case, upon the following points:

'1. The nature and probable extent of the indebtedness of the corporation;

'2. The probable expense of the receivership;

'3. The probable amount of available assets;

'4. The parties liable as stockholders, the nature and extent of the liability of each, and their probable solvency or responsibility.

         'If it appears that the available assets, or such amount as may be realized therefrom within a reasonable time, will be insufficient to pay such expenses and indebtedness in full and without delay, the court shall order a ratable assessment upon all parties liable as stockholders, or upon account of any stock of such corporation, for such amount, proportion, or percentage of such liability upon or on account of each share of such stock as it shall deem proper, considering the probable solvency and responsibility of the stockholders and the probable expense of collecting such assessment, and shall direct payment of the amount so assessed against each share of such stock to the assignee or receiver, within the time specified in such order. That no assessment shall be made against any stockholder for any liability of any corporation incurred outside of the scope of the powers of such corporation, or of the officers thereof incurring the same, unless such stockholder shall have been found by the court to have consented thereto.

         '8027. Such order shall authorize and direct the assignee or receiver to collect the amount so assessed, and, on failure of any one liable to such assessment to pay the same within the time prescribed, to prosecute an action against him, whether resident or nonresident, and wherever found. Such order shall be conclusive as to all matters relating to the amount, propriety, and necessity of the assessment, against such parties as shall have been served with notice of the Receiver's Petition for Assessment as provided in Section 8025, General Statutes of 1923, as amended by Section 273, Section 1, Session Laws of Minnesota for 1925, except that the defense of ultra vires set forth in Section 6646 may be interposed by any stockholder in any suit for any such assessment and if maintained shall diminish the liability of such stockholder in the proportion that the liabilities determined to be ultra vires shall bear to the total liabilities of such corporation.'

         As one feature of the alleged failure of proof it is claimed that it was not shown that the notice to stockholders was given as provided by section 8025, and therefore that the court was without jurisdiction in the premises. July 10, 1931, the court appointed August 31, 1931, as the time for hearing of said petition for assessment of stockholders, which was not less than thirty nor more than sixty days after the date of appointment. Subsequently, being advised by affidavit of counsel for the receiver that, because of the great number of stockholders--approximately five thousand--it would be impossible to notify all the stockholders within the time specified, the court, on August 18, 1931, ordered that upon the hearing on August 31, 1931, the matter would be continued to the 10th day of September, 1931, and that a notice of this order should be sent by mail to each stockholder at his last known place of address not later than August 22, 1931. September 10th was a date sixty-one days after the original date of appointment. This was a procedure adopted for the convenience of stockholders, in the interest of due notice, and in substantial compliance with the statutory provision. The statute does not require the matter to be heard within sixty days. It does require that a time for the hearing shall be appointed within that time. Thereafter the hearing must depend upon the necessities of the situation, including the convenience of the court, and that of the parties, and the demands of justice in general.

         But it is insisted that there was no proof of due service of notice. Prior to the hearing the record shows that there were filed affidavits of sheriffs and others certifying to service upon approximately fifteen hundred resident stockholders; an affidavit of publication of notice to all stockholders in accordance with the order of court; and an affidavit of mailing notice to thirty-five hundred, shown by the receiver to be nonresident stockholders in an exhibit attached to his

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verified petition for order of assessment. On this exhibit were shown the names of all stockholders with their addresses and the number of shares of stock held by each. The facts respecting these forms of service, as shown by the files and records in the receivership...

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