Continental Vinyl Products Corp. v. Mead Corp.

• Decision Date: 30 August 1972
• Citation: 27 Cal.App.3d 543,103 Cal.Rptr. 806
• Court: California Court of Appeals Court of Appeals
• Parties: CONTINENTAL VINYL PRODUCTS CORPORATION, a California corporation, Plaintiff, v. MEAD CORPORATION and National Starch and Chemical Corporation, Defendants and Respondents, Robert Vener, Intervenor Plaintiff and Appellant. Curtis B. DANNING, Trustee In Bankruptcy of Continental Vinyl Products Corporation, a California corporation, Plaintiff and Respondent, v. BARTON POHL, JR. CORP., a California corporation, dba Barrett, Kardell & Pohl, and Barton Pohl, Jr., Defendants and Respondents, Robert Vener, Intervenor Plaintiff and Appellant. Civ. 39587, 39588.

Page 806

103 Cal.Rptr. 806

27 Cal.App.3d 543

CONTINENTAL VINYL PRODUCTS CORPORATION, a California corporation, Plaintiff, v. MEAD CORPORATION and National Starch and Chemical Corporation, Defendants and Respondents, Robert Vener, Intervenor Plaintiff and Appellant.

Curtis B. DANNING, Trustee In Bankruptcy of Continental Vinyl Products Corporation, a California corporation, Plaintiff and Respondent, v. BARTON POHL, JR. CORP., a California corporation, dba Barrett, Kardell & Pohl, and Barton Pohl, Jr., Defendants and Respondents, Robert Vener, Intervenor Plaintiff and Appellant.

Civ. 39587, 39588.

Court of Appeal, Second District, Division 1, California.

Aug. 30, 1972.

Hearing Denied Oct. 25, 1972.

Meyer Berkowitz, Beverly Hills, for intervenor-appellant.

Gendel, Raskoff, Shapiro & Quittner and Richard S. Berger, Los Angeles, for respondent Curtis B. Danning, Trustee in Bankruptcy of Continental Vinyl Products Corp.

Jones & Wilson and James T. Hudson, Los Angeles, for respondents Barton Pohl, Jr. Corp., dba Barrett, Kardell & Pohl, and Barton Pohl, Jr.

No appearance for respondent Mead Corp.

No appearance for respondent National Starch and Chemical Corp.

THOMPSON, Associate Justice.

This is an appeal from denials of motions for leave to file a complaint in intervention in each of the subject actions. We affirm the orders of the trial court.

Appellant, Robert Vener, is the owner of 90 percent of the issued and outstanding shares of Continental Vinyl Products Corporation. Continental's principal business was the manufacture and sale of a laminated vinyl coated plywood. In its fiscal year ending May 13, 1969, the corporation had gross sales of $3,638,000 and a net profit before taxes of $275,274. During the fiscal year 1969--1970, products delivered by Continental delaminated. Its customers refused to pay for the defective product and sued the corporation for damages. On January 27, 1970, Continental filed an action joining counts against Mead Corporation and National Starch and Chemical Corporation, its suppliers, with a count against Glen Falls Insurance Company, seeking a declaration of rights under a products liability policy of insurance.

Two weeks after the complaint was filed, February 10, 1969, Continental filed a petition for an arrangement under Chapter XI of the Bankruptcy Act. Respondent Danning was appointed receiver. On November 6, 1970, Continental was adjudicated a bankrupt and Danning was appointed trustee in bankruptcy. Control over the litigation in the lawsuit filed by Continental passed to Danning. ¹ He determined that the declaratory relief action against Glen Falls could be better tried in a separate proceeding. Accordingly, Danning filed a dismissal without prejudice of the action against Glen Falls and filed a new complaint on December 10, 1970, naming himself as plaintiff in his representative capacity.

On June 25, 1971, appellant Vener filed his motions for leave to file a complaint in intervention in each of the two pending actions. The complaint in intrevention alleges the historical facts with respect to the corporation and the litigation against its suppliers and insurance carrier. It alleges the following also: The acts of Mead, National Starch, and Glen Falls resulted in the insolvency of Continental and, as a consequence, Vener suffered individual and personal damages of a large amount because of the reduction of value of his 90 percent stock interest in Continental. The trustee in bankruptcy represents the bankrupt estate protecting the interest of the creditors and not of Vener. The proper prosecution of the pending litigation should result in a recovery sufficient to restore Continental to its previous prosperity. Appellant Vener's rights are the only ones that will be affected by prosecution of the litigation in a fashion to recover an amount in excess of that necessary to make the creditors of Continental whole. The complaint in intervention does not allege improper conduct or self-dealing by the trustee in bankruptcy or any threat that he will not diligently prosecute the two pending cases. Neither does it allege that Vener represents all of the shareholders of Continental or that his interest is in any respect different from that of its other shareholders, except in amount.

In his declaration supporting his motion for leave to intervene, Vener states the following: 'Subtle conflicts of interest' exist between the trustee in bankruptcy and Vener bacause the trustee discontinued Vener's salary as president of Continental, Vener resigned as persident of the corporation, the trustee selected his own counsel to prosecute the litigation substituting them for Vener's lawyer, all dealings between the trustee and Vener have been at arm's length, and the trustee has never represented individually either Vener or Continental. The conflict is 'obvious' no matter how 'well meaning and well motivated' the trustee is to act on behalf of the bankrupt estate and cannot be avoided. The trustee, in two instances, acted in the interest of the corporation and bankrupt estate and contrary to Vener's claims against them. On one occasion, the trustee negotiated a cancellation of receiver's certificates issued to Vener, requiring him to accept property in exchange. The trustee refused to accept a proposal by Vener to purchase machinery and equipment owned by Continental unless Vener posted an indemnity bond to protect against diminution of the bankruptcy estate if the transaction were consummated. The declaration does not allege bad faith or improper conduct of the trustee in bankruptcy.

The trial court denied the motions for leave to intervene. Appellant contends it erred in so doing. We conclude that the rulings of the trial court must be sustained.

Code of Civil Procedure section 387 provides: 'At any time before trial, any person, who has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both, may intervene in the action or proceeding.' Not every interest in the outcome of litigation gives to its possessor the right to intervene in the lawsuit. 'The interest . . . must be direct and not consequential, and it must be an interest which is proper to be determined in the action in which the intervention is sought.' (Isaacs v. Jones, 121 Cal. 257, 261, 53 P. 793, 794.)

A person has a direct interest justifying intervention in litigation where the judgment in the action of itself adds to or detracts from his legal rights without reference to rights and duties not involved in the litigation. (Olson v. Hopkins, 269 Cal.App.2d 638, 643, 75 Cal.Rptr. 33.) Thus, an attaching creditor may intervene in an action testing conflicting claims to property under attachment. (Berghauser v. Golden State Orchards, 208 Cal. 550, 282 p. 950; Kimball v. Richardson-Kimball Co., 111 Cal. 386, 43 P. 1111.) An heir may intervene in a will contest. (Voyce v. Superior Court, 20 Cal.2d 479, 127 P.2d 536.) A shareholder of a corporation whose shares are not of record because the corporate directors refuse to register them may intervene in an action to dissolve the company. (Rosner v. Benedict Heights, Inc., 219 Cal.App.2d 1, 32 Cal.Rptr. 764; Corp.Code, § 4653.) The assignee of a fractional interest in property or the holder of a contract to purchase it may intervene in an action involving title to the property. (Dabney v. Philleo, 38 Cal.2d 60, 237 P.2d 649; Bogue v. Roeth, 98 Cal.App. 257, 276 P. 1071.) Taxpayers of a municipality, parties in a separate action to declare an election void in which they were granted an order restraining the municipality from proceeding under the authority granted by the election, may intervene in an action brought by the municipality against the California Secretary of State to declare the election valid. (Wright v. Jordan, 192 Cal. 704, 221 P. 915.) The holder of a personal injury judgment may intervene in an action by the judgment debtor's insurer to rescind an insurance policy providing liability coverage of the judgment. (Belt Casualty Co. v. Furman, 218 Cal. 359, 23 P.2d 293.) The surety on a redelivery bond in a claim and delivery action has a direct interest justifying intervention where the personal property has been destroyed so that a judgment for the plaintiff will directly reach the bond. (Drinkhouse v. Van Ness, 202 Cal. 359, 260 P. 869.)

An interest is consequential and thus insufficient for intervention when the action in which intervention is sought does not directly affect it although the results of the action may indirectly benefit or harm its owner. Thus an unsecured creditor of a defendant who will be rendered unable to pay the debt if he loses a lawsuit is held to have only a consequential interest not justifying intervention in the litigation. (Horn v. Volcano Water Co., 13 Cal. 62, 73 Am.Dec. 569; Olson v. Hopkins, Supra, 269 Cal.App.2d 638, 75 Cal.Rptr. 33.) Intervention has been denied to the wife of a defendant claiming a potential threat to her community interest in the marital property if the defendant loses and execution is levied upon the assets. (Bechtel v. Axelrod, 20 Cal.2d 390, 125 P.2d 836.) The principal municipal customer of a water company suing others for a declaration of its water rights has only a consequential interest not justifying intervention. (Allen v. California Water & Tel. Co., 31 Cal.2d 104, 187 P.2d 393.) A contingent beneficiary of a trust seeking to intervene in a divorce action between other persons in order to establish the illegitimacy of a prior beneficiary to prevent his taking under the trust and thus to establish the right of the attempting intervenor to take, was not permitted to do so because his interest in the divorce was consequential and not direct. (Bernheimer v. Bernheimer, 87 Cal.App.2d 242, 196 P.2d 813.) An insurer which refused to defend except upon a reservation of rights has only a consequential interest not justifying intervention in...