Bowersock Mills & Power Co. v. Joyce

• Decision Date: 08 March 1939
• Docket Number: No. 11209.,11209.
• Citation: 101 F.2d 1000
• Parties: BOWERSOCK MILLS & POWER CO. v. JOYCE et al.
• Court: U.S. Court of Appeals — Eighth Circuit

101 F.2d 1000 (1939)

BOWERSOCK MILLS & POWER CO. v. JOYCE et al.^*

No. 11209.

Circuit Court of Appeals, Eighth Circuit.

March 8, 1939.

George K. Melvin, of Lawrence, Kan., for appellant.

Frank Lee, of St. Louis, Mo., for appellee receiver, Barton T. Clifford.

Before GARDNER, SANBORN, and VAN VALKENBURGH, Circuit Judges.

SANBORN, Circuit Judge.

The question presented by this appeal is whether it was within the discretion of the court below to require the appellant, at whose instance and request the court had appointed a temporary receiver, to pay so much of the compensation of the receiver and his counsel as exceeded the funds of the receivership.

The appellant is a Kansas corporation which manufactures and sells Jenny Wren Wheat products. In 1934 it had an agreement with John M. Joyce, a St. Louis broker, to distribute its products in six states. Joyce scattered some $40,000 worth of these products throughout his territory. Some were on consignment with merchants and some in storage in St. Louis and other places. In January, 1935, the appellant sued Joyce for an accounting and other equitable relief in the Circuit Court of the City of St. Louis. In that suit it was unsuccessful, the court holding that the appellant was doing business in Missouri without authority. In February, 1935, Joyce brought an action against the appellant in the same State court for $100,000 damages for breach of contract. This suit the appellant removed to the court below, and, by answer and cross-bill, set up its grievances against Joyce and asked for an accounting, for an injunction to prevent him from disposing of its products in his possession or control or the proceeds thereof, and for the appointment of a temporary receiver to take possession of such property and to prevent the disposition of it in such a way as to injure the appellant's business. According to the allegations of the cross-bill, these products were perishable and were deteriorating, and the sale of them in their deteriorated condition would be detrimental to the appellant's business and good will. In its cross-bill, the appellant asked "that said receiver be authorized to take possession of said funds, accounts, merchandise and products, and to hold the same in accordance with the orders and judgments of this Court, and to hold the proceeds of such sales in his possession awaiting final judgment and decision of the Court herein; and for such further orders and judgments as from time to time may seem meet and proper." Italics supplied.

On July 26, 1935, the court appointed Claude D. Speak temporary receiver, with authority "to take possession of the goods, products and merchandise of the defendant above described in the possession or under the control of Joyce and to that end to take any steps necessary to recover possession thereof * * *" and to dispose of them under orders of the court. The court appointed Mr. Frank Lee attorney for the receiver. On November 22, 1935, Speak was removed as receiver, and Barton T. Clifford was appointed his successor. The final report of Speak, receiver, made December 10, 1935, showed that he had received $12,531.95, that he had expended $5,207.52, and that there was a balance of $7,324.43. This amount he turned over to his successor. The court approved the report, allowed Speak $1,600 for his services as receiver, and fixed the compensation of his attorney at $1,500. These amounts were paid. Thus it appears that the operations of Speak, receiver, resulted in obtaining $4,224.43 in excess of disbursements. On July 6, 1936, the court allowed Mr. Clifford $1,000.00 for his services as receiver. On June 23, 1937, Clifford, receiver, reported that he had received $8,348.83½, had disbursed $7,771.54½, and had a balance of $577.29. On January 12, 1938, he filed another report, showing additional receipts of $200, disbursements of $198.83, and a balance on hand of $578.46. Applications were made to the court for additional allowances for his services and for those of his attorney. There was a hearing upon these applications on January 22, 1938. The evidence disclosed that the receivership had handled 204,828 packages of Jenny Wren products gathered from 9,526 retail merchants, 20 warehouses and seven garages: that Clifford recovered 10,621 packages from retail merchants located in seven different states; that the greater part of the appellant's merchandise was located in St. Louis; that the expense of recovering and assembling these scattered goods was out of proportion to their value, but that the appellant wished to have them taken out of the hands of the merchants who held them on consignment, in order to prevent demoralization of the market for its goods; that Clifford, receiver, had furnished office space for the receivership and had thus saved it approximately one hundred dollars a month; that the services of Mr. Lee as attorney for the receiver extended over thirty months; that in rendering such services he spent, all told, between 100 and 125 full working days; that he assisted and advised the receivership in connection with gathering together the appellant's merchandise; that he conducted correspondence with other lawyers in the various states in which the goods were located, and prepared applications for numerous orders with respect to the disposition of merchandise recovered; that the entire merchandise which he and the receiver succeeded in recapturing was disposed of for about $12,000; that expenditures in addition to the allowances for the services of the receiver and his attorney consisted of sums paid for labor, commissions to auctioneers, postage, freight, and warehouse charges; that at the peak of the work there were seven employees, beside the receiver and his attorney, working on receivership matters.

After hearing the evidence, the court fixed the additional compensation of the receiver and his counsel at $1,250 each, and on January 24, 1938, ordered the appellant to deposit with the Clerk of the Court $2,500 wherewith to pay such allowances.

The appellant moved the court to either vacate or modify this order, on the grounds (1) that the court was without authority to make it, and (2) that in making it the court had failed to take into account the balance of $578.46 in the receivership fund. The court overruled this motion. In its opinion, the court said: "The trial of this cause was repeatedly continued by consent of plaintiff and defendant. On January 12th, 1938, counsel for defendant informed the Court that a settlement had been reached, and thereafter the Temporary Receiver filed his final report and moved for additional compensation in the sum of $1250.00 in full for his services, and his attorney moved for an additional allowance of $1250.00 in full for his services. At the hearing on these motions defendant admitted that the services performed by the Temporary Receiver and his attorney were most satisfactory. After due consideration, the Court awarded the Temporary Receiver and his attorney the full amount asked, as in all respects reasonable and proper."

The appellant challenges the allowances made to the receiver and his counsel and the direction that it pay them. It contends: (1) That the allowances were excessive; (2) that they were chargeable only against receivership funds; and (3) that the court failed to consider the balance of $578.46 remaining in the hands of the receiver.

1. The first contention is without merit. The evidence in the record sustains the conclusion of the court below that the receiver and his counsel were entitled to the additional compensation allowed, upon the basis of services actually rendered.

2. The second contention presents the main problem. The receiver was an officer of the court, was acting for the court, and was not an agent or employee of either party to the litigation.¹

The general rules are that where a receiver is regularly and lawfully appointed, his expenses and compensation are to be charged only against the receivership funds and not against the party who procured his appointment;² but that where the appointment of the receiver was irregular or inequitable or the court which appointed him was without authority so to do, the party who procured the appointment, and not the receivership fund, is liable for the expenses of the receivership.³

Equitable considerations have created exceptions to these general rules, and it is recognized that there is a discretion in the court appointing the receiver as to who shall be charged with the costs of the receivership.⁴

The temporary receiver in this case was properly appointed. The appellant argues that, under the applicable general rule, the receiver and his counsel may be paid only from the funds of the receivership; while the receiver contends that, under the circumstances, a departure from the general rule was justified.

The weakness of the appellant's position is that in its cross-bill it prayed for the appointment of a receiver pendente lite; that the receivership was created for its sole benefit and protection; and that the intention of the appellant and the court was that the receivership should continue until the appellant's controversy with Joyce had been tried and determined. There is nothing in the record to suggest that the receivership was not conducted in accordance with the wishes of the appellant, and nothing to show that, at any time, the appellant suggested a termination of the receivership, although it must have known that the expense of recovering this widely scattered and deteriorated merchandise would be out of proportion to its value.

The weakness of the receiver's position is that he failed to notify either the appellant or the court that the assets of the receivership would be insufficient to meet expenses. When he first discovered the probable insufficiency of the assets, he should, upon notice to the appellant, have applied to the court for instructions as to...