Central West Public Service Co. v. Craig

Decision Date04 April 1934
Docket NumberNo. 9939.,9939.
Citation70 F.2d 427
PartiesCENTRAL WEST PUBLIC SERVICE CO. et al. v. CRAIG et al.
CourtU.S. Court of Appeals — Eighth Circuit

W. C. Fraser, of Omaha, Neb. (Hird Stryker, and E. B. Crofoot, both of Omaha, Neb., and Ross, McConnell & Watts, of Chicago, Ill., on the brief), for appellant Central West Public Service Co.

J. A. C. Kennedy, E. J. Svoboda, and Ralph Svoboda, all of Omaha, Neb., for appellants Alfred Bersted and Robert E. Wessling.

John C. Mullen, of Falls City, Neb., and Arthur F. Mullen, of Omaha, Neb. (Paul P. Massey, of Omaha, Neb., on the brief), for appellees.

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

GARDNER, Circuit Judge.

This appeal presents for review two orders of the lower court, one an order entered in a suit entitled H. G. Craig, L. F. Troxel, William Berry, and C. L. Wakefield, plaintiffs, v. Central West Public Service Company, a Delaware Corporation, First Union Trust & Savings Bank, a corporation, Trustee, and John C. Mechem, Trustee, defendants, Equity No. 1289, which overruled the special appearance and motion to vacate an ex parte order appointing a receiver in said suit, interposed by the defendant therein, Central West Public Service Company; and the other an order entered in the suit entitled Vera M. Kirkpatrick and Roland J. Wachter, Trustee, plaintiffs, v. Central West Public Service Company, a Delaware Corporation, First Union Trust & Savings Bank, a corporation, Trustee, John C. Mechem, Trustee, Max McGraw, Judson Large, and Omaha National Bank, a corporation, defendants, Equity No. 1290, consolidated by the court on its own motion with said suit Equity No. 1289, and which last-named order also adjudged and decreed that a receiver be appointed for the defendant Central West Public Service Company and all of the assets and properties of that company wheresoever situate in the states of Nebraska, North Dakota, South Dakota, Minnesota, and Iowa, with authority to take over into his possession all the property of said defendant, and restraining all officers, agents, and all persons claiming under the defendant from interfering with the receiver, and enjoining creditors and others from instituting or prosecuting, or continuing the prosecution of any action at law against the defendant in any court, authorizing the receiver to operate and conduct the business affairs of the defendant corporation, and conferring upon such receiver other very sweeping powers and authority.

We shall first refer to the special appearance and motion to vacate the ex parte order appointing a receiver in the Craig suit.

The plaintiffs in that suit are residents and citizens of Texas and Arkansas, while the defendant Central West Public Service Company is a corporation organized under the laws of Delaware, and the other defendants are nonresidents of the state of Nebraska. By its special appearance, the defendant Central West Public Service Company challenged the jurisdiction of the court to entertain the suit for the reason that it appeared that neither the plaintiffs nor the defendants were inhabitants or residents of the District of Nebraska, and on the further ground that it appeared upon the face of the complaint that the amount in controversy did not exceed, exclusive of interest and costs, the sum of $3,000.

In the Craig Case, as has already been noted, an ex parte order was entered, appointing a receiver. This receiver was by order of court vested with the usual powers of an equity receiver, was clothed with authority to conduct the business and affairs of the defendant company, and to wind up its affairs. Pursuant to this order, the receiver at once went into possession of the properties of the defendant Service Company situated in the states of Nebraska, South Dakota, North Dakota, Minnesota, and Iowa.

This order was entered December 4, 1933, and on December 8, the service company entered its special appearance, challenging the jurisdiction of the court. This special appearance was noticed for hearing on December 9, 1933, but the hearing was postponed until December 14. On December 13, plaintiffs, by leave of court, amended their complaint, and on December 12, bill of complaint was filed in No. 1290, Vera M. Kirkpatrick et al. v. Central West Public Service Company, et al., above referred to.

The language of the complaints is substantially the same in each suit. In the Kirkpatrick Case, motion was filed with the filing of the complaint, asking for the appointment of a receiver, and that motion was brought on for hearing on December 14, the time fixed for hearing the special appearance and motion in the Craig Case. On that date, the service company filed objections to the appointment of a receiver in the Kirkpatrick Case, and both matters were heard on that date, but we shall now refer only to the Craig suit.

In that suit, the court declined to pass on the special appearance, and did not do so until it entered its order appointing a receiver in the Kirkpatrick Case, January 4, 1934, at which time the court, on its own motion, consolidated both suits.

In the bill of complaint in the Craig suit it is alleged that the plaintiffs are the legal and equitable owners and holders of certain first mortgage bonds issued and delivered by the defendant service company in the sum of $5,000, said bonds being secured by a first lien deed of trust on all the physical properties of the defendant service company, and that they are also the owners of certain debentures executed by the service company, these being inferior to the first mortgage bonds; that there has been default in the payment of the interest on these securities since the 1st of May, 1932. It is then alleged that the suit is brought "by the plaintiffs as a creditors' bill for and on behalf of themselves and all other creditors similarly situated to the plaintiffs who may elect to join in the prosecution of this suit"; that the defendant corporation is insolvent; that on account of adverse financial conditions and improper conduct of the business of the defendant, the plaintiffs are in danger of losing their debt, unless the properties of the defendant are impounded by the court and placed in the hands of a receiver; that the defendant holds property, real and personal, in the states above mentioned; that the liquid assets are being sent out of Nebraska to the office of the company in Chicago; that profits of the business from the five states mentioned are being withdrawn and sent to the office of the company in Chicago; that the defendant has made default in the payment of interest and taxes; that its income is insufficient to pay its taxes and interest, and that it is insolvent; that its physical properties are deteriorating; that its officers are mismanaging its business and dissipating its liquid assets; that although the trust deed provides that 12½ per cent. of the gross revenue shall be set aside annually to create a fund to liquidate the bonds, no part of the gross revenue has been appropriated to that end for the years 1928 to 1933, inclusive, and that the trustees named in the trust deeds have placed themselves in a position hostile to the trust.

As has been observed, the receiver was in possession under this ex parte appointment for at least one month before he was appointed in the Kirkpatrick Case, so that if there was no jurisdiction to enter the ex parte order in the Craig Case, it cannot be said that this was cured by the appointment of a receiver one month later in the Kirkpatrick Case.

At the time of the entry of the ex parte order there was nothing to indicate what securities were owned by the plaintiffs, other than the $5,000 in bonds. True, it is alleged that the plaintiffs owned debentures, but it is not disclosed in what amount.

So far as the special appearance and motion to vacate is concerned, it, strictly speaking, raises only a jurisdictional question, but we cannot refrain from referring to the appointment of a receiver in that case without notice to the defendant, because even if the court had jurisdiction we think it would have been an abuse of discretion to make such appointment upon the showing made, without notice to the service company. The remedy is not only an extraordinary one, but is harsh, drastic, and severe Brictson Mfg. Co. v. Close (C. C. A. 8) 280 F. 297, and as a general rule such action should not be taken without affording the defendant an opportunity to be heard. We do not mean to be understood as saying that the court is without power to appoint without notice to the defendant, but such power should, if at all, be exercised sparingly and with great caution, and only under extreme and exceptional circumstances Joseph Dry Goods Co. v. Hecht (C. C. A. 5) 120 F. 760; Cabaniss v. Reco Min. Co. (C. C. A. 5) 116 F. 318; North American Land & Timber Co. v. Watkins (C. C. A. 5) 109 F. 101; Mann v. Gaddie (C. C. A. 5) 158 F. 42; Huff v. Bidwell (C. C. A. 5) 151 F. 563.

To warrant the appointment of a receiver upon an ex parte application, and without notice, there should be a very clear and convincing showing that only by such appointment can the interests of justice be served. We realize that the appointment of a receiver is one of the most difficult and embarrassing duties which a court of equity is called upon to perform. It is a peremptory proceeding by which the defendant is deprived of the possession of his property before final judgment or decree. Where plaintiff insists on the appointment of a receiver for a going concern on an ex parte showing, the court should, in the exercise of its judicial discretion, in addition to other precautions, require the applicant to furnish a bond or undertaking to the effect that if it shall be held that the order appointing receiver was erroneously or improvidently made, then the plaintiff will pay all costs and damages which the defendant may sustain by reason of the appointment of the receiver.

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