Crippin Printing Corp. v. Abel

• Decision Date: 24 November 1982
• Docket Number: No. 2-882A240,2-882A240
• Citation: 441 N.E.2d 1002
• Parties: CRIPPIN PRINTING CORPORATION, an Indiana Corporation, and Donald E. Carnagua, in his capacity as shareholder-director; David R. Decker, in his capacity as shareholder-director; Norman L. Woods, in his capacity as shareholder- director, Appellants (Defendants Below), v. Bill J. ABEL, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 1002

441 N.E.2d 1002

CRIPPIN PRINTING CORPORATION, an Indiana Corporation, and Donald E. Carnagua, in his capacity as shareholder-director David R. Decker, in his capacity as shareholder-director Norman L. Woods, in his capacity as shareholder- director Appellants (Defendants Below), v. Bill J. ABEL, Appellee (Plaintiff Below).

No. 2-882A240.

Court of Appeals of Indiana Second District.

Nov. 24, 1982.

Ronald E. Elberger, Rose McKinney & Evans, Indianapolis, for appellants.

John J. Dillon, William T. Rosenbaum, Irwin B. Levin, Dillon, Hardamon & Cohen, Indianapolis, for appellee.

SHIELDS, Judge.

Bill J. Abel (Abel) filed a complaint for corporate dissolution of Crippen Printing Corporation (Crippen) which further sought the appointment of a receiver during the pendency of the litigation. Abel sought the appointment of a receiver on the basis of an irreconcilable stockholder deadlock causing irreparable injury and damage to the corporation and on the basis of the corporation's actual, or imminent danger of, insolvency.

An emergency hearing on the limited issue of the appointment of a receiver was subsequently conducted. At the conclusion of the hearing the trial court appointed a receiver, having determined:

"7. That without the proposed loan dated August 4th, 1982 the corporation would have difficulty continuing its normal operations.

"8. That an irrevocable dispute exists between the shareholders of the corporation.

"9. That there is a present danger of a serious suspension of, or interference with the conduct of the business with a consequent depreciation of the value of the assets of the corporation.

"10. That an emergency exists and irreparable harm will occur without intervention by the court.

"11. That the shareholders are deadlocked in the management of the corporate affairs and the corporation is suffering, or is about to suffer irreparable injury by reason thereof within the meaning of I.C. 23-1-7-3(a)(5).

"12. That the appointment of a receiver is necessary to protect the assets of the corporation and will serve a beneficial purpose for the shareholders."

Record at 364-65.

Crippen appeals and seeks review of the appointment of a receiver on two bases: Abel's standing to seek relief and the trial court's abuse of discretion in granting the relief.

Crippen argues Abel does not have standing to bring the primary action because of a Stock Purchase Agreement obligating Crippen shareholders to sell their stock when a termination of employment occurs. ¹ Crippen uses Indiana cases State ex rel. Berger et al. v. Rusche et al. (1942) 219 Ind. 559, 39 N.E.2d 433; and Doss v. Yingling (1930) 95 Ind.App. 494, 172 N.E. 801 as authority. However, our examination of these cases reveals they concern disputes between shareholders, not disputes between a shareholder and a corporation as we have here.

Breger involved a proxy agreement and subsequent breach thereof wherein the court held the breaching shareholder had the right to vote despite the proxy agreement because the official record showed him to be the shareholder of record and "it is the general rule that the officers of the corporation can look no further than the legal title, as disclosed by the records of the corporation, in determining who is entitled to vote shares of stock at corporate meetings." Breger, 219 Ind. at 562, 39 N.E.2d at 435. That is still the rule. I.C. 23-1-2-9 (Burns Code Ed., 1973). Breger indicates a person has standing to sue a corporation if he or she appears as a shareholder of record on the official corporate record. Thus, this case, if anything, aids Abel.

Doss is inapposite to the standing question. It concerned the appropriateness of injunctive relief to stop a shareholder from selling his stock in violation of a shareholder agreement. Again, it was shareholder against shareholders; standing was not in issue.

We conclude the Agreement does not deprive Abel, as a shareholder of record, ² of standing to bring suit against Crippin prior to the actual sale or transfer of his stock.

Standing is jurisdictional. "[W]ithout the jurisdictional element of a case or controversy any court is without power to render a decision. Therefore, it is the law that a court must first determine that a party with standing has brought the cause and that he brings a justiciable issue before the court. If such is not the situation, there is nothing before the court and the court is totally without jurisdiction to decide any issue in the cause."

Board of Trustees v. City of Ft. Wayne (1978) 268 Ind. 415, 375 N.E.2d 1112, 1117.

Abel meets this test. He is a shareholder of record ³ "and as such [has] an interest ... and should have ... an opportunity to be heard." Tri-City Electric Service Co. v. Jarvis (1933) 206 Ind. 5, 185 N.E. 136, 139. He also brings justiciable issues before the trial court regarding corporate deadlock and insolvency. The fact Crippin may have a cause of action against Abel for any breach of the Stock Purchase Agreement is a separate matter from the case before us on review. See Griese-Traylor Corp. v. Lemmons (1981) Ind.App., 424 N.E.2d 173; Kruse, Kruse & Miklosko v. Beedy (1976) 170 Ind.App. 373, 353 N.E.2d 514.

Turning to Crippen's second issue, we acknowledge our scope of review of an interlocutory order appointing a receiver pendente lite is limited. This court will not weigh the evidence on appeal and, further, must construe the evidence along with all reasonable inferences in favor of the trial court's action. McKinley v. Long (1949) 227 Ind. 639, 88 N.E.2d 382. Further, because our standard of review is that of abuse of discretion, U.S. Aircraft Financing, Inc. v. Jankovich (1977) 173 Ind.App. 644, 365 N.E.2d 783, there must be a plain abuse of that power to the prejudice of the complaining party to warrant a reversal. Mead v. Burk (1901) 156 Ind. 577, 60 N.E. 338.

However, the appointment of a receiver is an extraordinary and drastic remedy to be exercised with great caution.

"The action affects one of man's most cherished and sacred rights guaranteed by the United States Constitution--the right to be secure in his property. This right is fundamental to every society in which men are free. For these reasons, the statute which grants such authority is to be strictly construed." (footnote omitted)

State ex rel. Makar v. St. Joseph County Court (1962) 242 Ind. 339, 179 N.E.2d 285, 289-90. Accordingly the standards by which the appointment can be justified are exceptionally stringent based upon the rationale that a court's power to appoint a receiver is in derogation of the fundamental right of the legal owner of property to possession. With these standards in mind, we review the trial court's appointment of a receiver in the instant case and find it erroneous.

Insolvency, or the imminent danger thereof, is a basis for the appointment of a receiver pendente lite under I.C. 34-1-12-1(5) (Burns Code Ed.1973). Such insolvency is the

"state of a person who is unable to pay his debts as they fall due in the usual course of trade or business.... By the word insolvency is meant a general inability to pay one's debts ..."

Chicago v. S.E. Ry. Co. v. Kenney (1910) 159 Ind. 72, 62 N.E. 26, 28.

With this definition in mind, we examine the trial court's finding

"7. That without the proposed loan dated August 4th, 1982 the corporation would have difficulty continuing its normal operations."

This finding on the issue of Crippen's financial situation negates the corporation's actual, or imminent danger of, insolvency as a basis for the appointment of a receiver. Implicit within the trial court's finding that without a loan the corporation would have difficulty continuing its normal operations are the findings: (a) with a loan there will be little or no difficulty and (b) absence of a loan will cause mere difficulty, but will not prevent operations from continuing, i.e., will not prevent debts from being paid as due or cause imminent danger debts will not be paid as due.

Difficulty in continuing operations is indicative only of increased effort in attaining a goal and does not mean that the goal cannot be attained or there is imminent danger the goal is unattainable.

Therefore, I.C. 34-1-12-1(5) is not a sufficient basis, as a matter of law, for the trial court's action in appointing a receiver. In fact, the trial court acknowledged that fact by stating in its order that it was appointing the receiver pursuant to I.C. 23-1-7-3(a)(5), the statutory ground for dissolution of a corporation based upon shareholder or director deadlock in the management of a corporation with consequential irreparable injury therefrom.

We must disagree with the trial court's use of the dissolution statute as a basis for the appointment of a receiver. The receiver therein authorized is a receiver who shall proceed to liquidate. Therefore, of necessity, such a receiver is one appointed after a trial on the merits on the issue of statutory grounds for dissolution. However because we affirm on any basis supported by the record, we look to other provisions of I.C. 34-1-12-1, specifically, clauses 3 and 7. ⁴

The trial court found an irrevocable dispute between the shareholders constituted a present danger of a serious suspension of or interference with the conduct of the business. Assuming, arguendo identity exists between the shareholders-directors in Crippen such that the shareholders constitute the management, we nevertheless cannot sustain the trial court's action in appointing a receiver on that basis.

The evidence reveals Crippen has four directors who are not deadlocked in that their vote has been three ayes, one nay. Thus, the directors, insofar as they constitute the management of the corporation, have not deadlocked. Turning to the shareholders, the evidence reveals no difficulties of any nature at the last annual meeting and that the date for the next annual meeting had not yet arrived. However, Crippen's by-laws,...