Lincoln Printing Co. v. Middle West Utilities Co.

• Decision Date: 15 February 1935
• Docket Number: No. 5262.,5262.
• Citation: 74 F.2d 779
• Parties: LINCOLN PRINTING CO. v. MIDDLE WEST UTILITIES CO. POLLAK v. McCULLOCH.
• Court: U.S. Court of Appeals — Seventh Circuit

74 F.2d 779 (1935)

LINCOLN PRINTING CO. v. MIDDLE WEST UTILITIES CO.

POLLAK v. McCULLOCH.

No. 5262.

Circuit Court of Appeals, Seventh Circuit.

January 2, 1935.

Rehearing Denied February 15, 1935.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Samuel A. Ettelson, of Chicago, Ill., for appellant.

Isaac H. Mayer, Carl Meyer, and Frederic Burnham, Herbert A. Friedlich, all of Chicago, Ill., for Continental Illinois Nat. Bank & Trust Co. of Chicago.

Albert L. Hopkins, Donald J. De Wolfe, and Anderson A. Owen, all of Chicago, Ill., for First Nat. Bank of Chicago.

Thurlow G. Essington and George B. McKibbin, both of Chicago, Ill., for Lincoln Printing Co.

Bruce Johnstone, Guy M. Peters, and William Burry, Jr., all of Chicago, Ill., for McCulloch.

James G. Condon and William A. Ryan, both of Chicago, Ill., for Hurley Estate.

Donald F. McPherson, M. Ogden West, and Martin Taylor, all of Chicago, Ill., for preferred stockholders' committee.

Joseph B. Fleming and Robert N. Golding, both of Chicago, Ill., for noteholders' committee.

Before SPARKS, FITZHENRY, and PAGE, Circuit Judges.

SPARKS, Circuit Judge.

This is an appeal from an interlocutory decree of the District Court denying and dismissing appellant Pollak's intervening petition to discharge equity receivers theretofore appointed for the Middle West Utilities Company, hereafter referred to as Middle West, and certain of their counsel; to dismiss the bill in equity of the Lincoln Printing Company under which the receivers were appointed; to set aside the equity proceedings in said cause, and to wind up the receivership. The basis for the demands in Pollak's petition was the alleged collusion in the appointment of the receivers and the institution of the proceedings for that purpose.

On April 14, 1932, the Lincoln Printing Company filed its bill of complaint in the District Court for the appointment of equity receivers for the Middle West, whereupon that company filed its answer of admission and consent, and on the next day, Samuel Insull, Edward N. Hurley, and Charles A. McCulloch, at the suggestion and by agreement of the parties, were appointed by the court as such receivers. About the same time Calvin Fentress, in a similar consent proceeding, was appointed by the District Court as equity receiver for Insull Utility Investments, Inc. Subsequently that company was adjudicated a bankrupt, and Fentress was appointed as receiver in bankruptcy at which time he, as receiver in bankruptcy, received from himself, as equity receiver, the entire corpus of the estate, holding it until the appointment of a trustee in bankruptcy. Later, on petition for fees for services for himself and counsel, objection was made by a stockholder of that company on the ground that there was collusion in his appointment and in the selection of his counsel. That issue was tried in the District Court before Judge Evans, whose opinion appears in 6 F. Supp. 653. Judge Lindley, who had appointed the receivers for the Middle West, regarded the language of Judge Evans' opinion as an implication of fraud upon the court in procuring the appointment of the receivers for Middle West. He thereupon, sua sponte, initiated proceedings in chancery for a complete investigation and final adjudication of that question.

It was in this proceeding that appellant, on January 11, 1934, petitioned and was permitted to intervene. In the meantime, Samuel Insull had resigned at the request both of the court and of his co-receivers, and Mr. Hurley had died. Receiver McCulloch filed a petition with the court asking for a full investigation of the charges.

In Pollak's intervening petition it was alleged that he was the owner of 2,200 shares of common stock of the Middle West; that the receivership proceedings had been fraudulently instituted and were a fraud and imposition upon the court; that prior to the appointments certain secret meetings had been held, attended by Samuel Insull, his personal counsel, and executives of certain creditor banks, for the purpose of formulating a specific plan and procedure for placing Middle West and certain other so-called Insull Corporations in receivership; that at those meetings Insull, Hurley, and McCulloch were collusively selected to be suggested as receivers, and two law firms to be their counsel; that no debenture holders, unsecured creditors or stockholders were represented, and that the meetings were held, and the selection of nominees made, solely in the interest of Insull and the secured bank creditors, who were interested in protecting for themselves certain collateral placed by Insull with them, to secure loans procured by him in his prior unlawful management of the corporation. The petition also charged that full and fair disclosure was not made to the court of the meetings, or of what there occurred as to how or by whom the recommendations had been agreed upon; that about the same time a petition in bankruptcy, which was still pending, was filed in the same court against the company; that the selection of receivers and solicitors was in violation of the practice approved by the Supreme Court, and that the receivers and their attorneys and solicitors were disqualified and their appointments illegal and void.

The relief prayed was in the alternative:

That the bill of complaint and all proceedings therein be forthwith dismissed; or

That the orders appointing the receivers and their counsel be vacated, and that the court select and appoint a receiver and counsel therefor; that upon such dismissal, the receiver and his solicitors be required to return to the estate all moneys received by them on account of fees; that an order be entered requiring the filing of a claim against the estate of Edward N. Hurley, now deceased, for the amount by him received as fees as receiver; and that if the estate had suffered any loss through the payment of unlawful expense on account of the receivership, the same be paid by counsel who were responsible for the imposition of the alleged fraud.

The facts out of which this controversy arises are fully set forth in Judge Lindley's opinion in Lincoln Printing Company v. Middle West Utilities Company (D. C.) 6 F. Supp. 663, and are made a part of this opinion by reference. There is no controversy over the facts. The intervener, however, denies the correctness of Judge Lindley's conclusions.

We are first confronted with appellee's motion to dismiss the appeal for the following reasons: (1) The order appealed from is interlocutory and not appealable; (2) the equity receivership proceeding has been superseded by the reorganization proceeding under section 77B of the Bankruptcy Act (11 USCA § 207), and the case is moot; (3) appellant as an intervener under Equity Rule 37 (28 USCA § 723) cannot question the original proceedings; (4) there is no evidence that appellant is a stockholder or a party in interest; (5) appellant, if a common stockholder, has no right to intervene; (6) appellant is barred by his laches.

The allegations of appellant's intervening petition are of such character as to convince us that for the good of all parties concerned this cause should be decided on its merits, if possible, rather than upon technicalities. For this reason we shall give but scant consideration to the motion to dismiss the appeal. We reject the first reason assigned, because the literal reading of appellant's prayer complies with section 129 of the Judicial Code (28 USCA § 227), which provides for an appeal from an order of the court refusing an order to wind up a pending receivership. That the case has become moot as to certain portions of the prayer, such as the elimination of Mr. McCulloch as receiver, we have no doubt, but the prayer is quite inclusive in its character, and there are other questions raised which we think are not moot. Under Equity Rule 37 (28 USCA § 723) we think it is clear that appellant as intervener could not question the original order appointing the receiver, nor could he rightfully demand that the original bill be dismissed. But we think the rule would not prevent him from questioning the present eligibility of the receiver, after he had been permitted to intervene, even though the ineligibility charged existed at the time of the appointment. We are further of the opinion that appellant's allegation under oath that he was a stockholder, which was not denied, nor the question raised until the filing of this motion, is sufficient proof of the fact. That a common stockholder has no absolute right to intervene we have no doubt. Nor did he, but he intervened because the court in the exercise of its discretion permitted him to do so, and we think in this the discretion was not abused. We shall consider the question of laches with the merits. The motion to dismiss the appeal is denied.

The questions presented on the merits are: (1) Did the facts amount in law to collusion and fraud, and (2) must the court, where a receivership proceeding has been instituted through collusion and fraud, discharge the receiver and wind up the receivership proceeding.

In considering these questions it is first necessary to determine the legal meaning of the word collusion as applied to the facts before us. In Dickerman v. Northern Trust Company, 176 U. S. 181, 20 S. Ct. 311, 314, 44 L. Ed. 423, it appeared that a bondholder had brought suit upon six coupons, and that the action was brought directly or indirectly by the legal firm who were also counsel for the defendant company, and it further appeared that the president of the company, prior to filing the suit, had been in consultation with the attorneys of the trustees about foreclosing the mortgage and taking possession of the property. The court said, "We have no doubt that this judgment was collusive in the sense that it was obtained by the plaintiff and consented to by the defendant company for the purpose of giving the trustees a legal excuse for declaring the principal...