Farwell v. Milliken & Farwell, Inc.

• Decision Date: 17 September 1962
• Docket Number: No. 743,743
• Citation: 145 So.2d 644
• Court: Court of Appeal of Louisiana — District of US
• Parties: Hermina M. FARWELL v. MILLIKEN & FARWELL, INC.

Page 644

145 So.2d 644

Hermina M. FARWELL v. MILLIKEN & FARWELL, INC.

No. 743.

Court of Appeal of Louisiana, Fourth Circuit.

Sept. 17, 1962.

Rehearing Denied Oct. 29, 1962.

Certiorari Granted Jan. 3, 1963.

F. Y. Lozes, New Orleans, for plaintiffs-appellants.

J. P. Little, J. M. Colomb, Jr., New Orleans, for defendant-appellees.

Before FRUGE , MENUET and ELLIS, JJ.

J. ADOLPH MENUET, Judge pro tem.

This suit was brought by Mrs. Hermina M. Farwell against Milliken & Farwell, Inc. seeking the appointment of a receiver for said corporation. Plaintiff also filed a similar suit against Westover Planting Company, Ltd., a separate but closely related corporation. Because the alleged factual situation raised the identical legal issue, the two suits were ordered consolidated by the trial court. Other persons alleging themselves to be the owners of all the outstanding shares of both corporations, with the exception of the shares owned by the petitioner, were permitted to file oppositions to the applications.

Defendants, Milliken & Farwell, inc. and Westover Planting Company, Ltd. have filed exceptions of no right and no cause of action to the original and supplemental petitions of plaintiff.

For right of action, the plaintiff asserts she is the widow of Charles A. Farwell who died in January, 1954. At the time of his death, Charles A. Farwell and F. Evans Farwell owned in equal proportions all the shares in both closely associated corporations. Under the terms of the will of Charles A. Farwell, petitioner inherited 125 shares of the capital stock of Milliken & Farwell, Inc. and 126 shares of the capital stock in Westover Planting Company, Ltd. The remaining shares of the decedent were inherited by his children of a former marriage. F. Evans Farwell has retained his 50% Interest. It can be determined from the petition, and the parties so concede, that plaintiff is a minority stockholder, owning approximately 12 1/2% Of the shares in each corporation.

For cause of action, the plaintiff alleges that F. Evans Farwell, president of both companies, from 1954 to date has voted himself excessive annual salaries and bonuses; has charged many personal debts to the corporations; and has paid excessive interest to members of his family for loans to the corporations. She charges that by his mismanagement during the period of 1954 through 1960, both corporations have shown average annual operating losses in the manufacture of raw sugar which is the primary activity of the said corporations. ¹ Petitioner further alleges in her second supplemental petition the president entered into a contract ² with another stockholder and member of the board of directors under which this stockholder received from Milliken & Farwell, Inc. $11,525.00 during the period from June 30, 1961, through November, 1961. She charges these payments 'in view of all the circumstances can be interpreted in no other way than that of a payoff in order to persuade Dr. Farwell to vote at the shareholders meeting and all the board meetings with the President of the corporation and that this constituted a conspiracy on the part of the President and Dr. Farwell to violate her charter rights and to further waste and dissipate the assets of the corporation'.

Following the trial, the lower court rendered judgment in both suits maintaining the exceptions of no right and no cause of action. In his assigned reasons, he noted the absence of any allegations that either the corporations or the president were insolvent and he was of the opinion that plaintiff was not entitled to the relief sought. He would not appoint receivers for these corporations which are patently solvent at this time.

The plaintiff-appellant now asserts that she has alleged facts constituting fraud and breach of trust which must be accepted as true for the purpose of the exceptions and which if so accepted entitles her to trial on the merits without regard to solvency of the corporations or their president. It will be noted the petitions fail to allege specifically fraud and breach of trust.

In determining whether a petition states a cause of action, it is viewed in the light most favorable to the petitioner, and the exception of no right or cause of action may not be sustained unless, conceding all facts in the petition to be true, there is no claim upon which relief may be granted. 9 Tul.L.R. 17. Fraud must be alleged with particularity. LSA-C.C.P. Art. 856.

An examination of the various allegations of the petitions clearly show that both corporations possess considerable assets and both are solvent at this time. In fact, the parties stipulated before this court that the corporations and their common president were amply solvent. However, her attorneys maintain because of the allegations of facts which must be accepted as true, her petitions set forth causes of action under specific provisions of our statutory law.

LSA-R.S. 12:752 provides, in part, as follows:

'Grounds for appointment of receiver. All district courts may appoint receivers to take charge of the property of corporations, and of the property of foreign corporations actually located herein under the following conditions: * * *

'(2) At the instance of any shareholder or creditor, when the directors or other officers of the corporation are jeopardizing the rights of shareholders or creditors by grossly mismanaging the business or by committing acts ultra vires, or by wasting, misusing, or misapplying the property or funds of the corporation;

'(11) At the instance of any shareholder when a majority of the shareholders are violating the charter rights of the minority and putting their interests in imminent danger.'

LSA-R.S. 12:36 provides as follows:

'Relation of directors and officers to corporation

'Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith, and with that diligence, care, judgment, and skill which ordinarily prudent men would exercise under similar circumstances in like positions.'

LSA-R.S. 12:56 provides, in part, as follows:

'Who may institute involuntary proceedings. A. A petition for involuntary proceedings for dissolution may be filed by either:

'(1) A shareholder or shareholders, severally or jointly, who have been registered owners for a period of not less than six months of not less than twenty per cent. of the entire outstanding shares of the corporation.'

Section 752 of Title 12 of the Revised Statutes originally formed a portion of Act 159 of 1898, the entirety of which is now incorporated in Section 751 et seq. of Title 12 of the Louisiana Revised Statutes of 1950 LSA-R.S. 12:36 and LSA-R.S. 12:56 were originally incorporated in Act 250 of 1928, generally known as the Louisiana Business Corporations Act.

Prior to the enactment of Act 250 of 1928, a receiver could be appointed at the instance of a minority shareholder holding less than 20% Of the shares under the provisions of Act 159 of 1898 without regard to the solvency of the corporation. However, in the case of Peiser v. Grand Isle (1952) 221 La. 585, 60 So.2d 1, 3, the Supreme Court reviewed the prior jurisprudence and reconciled the statutory provisions in the following language:

'While the provisions of subsections (2) and (11) of LSA-R.S. 12:752 set forth the causes for which a receivership may be sought by a shareholder, the appointment of a receiver is not mandatory but is subject to sound judicial discretion. Kinnebrew v. Louisiana Ice Co., 216 La. 472, 43 So.2d 798; Kohler v. McClellan, 5 Cir., 156 F.2d 908, certiorari denied 329 U.S. 781, 67 S.Ct. 203, 91 L.Ed. 670; Duval v. T. P. Ranch Co., 151 La. 142, 91 So. 656; Davies v. Monroe Waterworks & Light Co., 107 La. 145, 31 So. 694. In determining whether or not the facts justify and make advisable a receivership, in the absence of a clear showing of fraud or breach of trust the courts are slow to interfere, will order the appointment of a receiver only when it is manifest that it should be made, and are influenced by a consideration of whether such action would serve a useful purpose. Kinnebrew v. Louisiana Ice Co., supra; Reynaud v. Uncle Sam Planting Co., 152 La. 811, 94 So. 405; Duval v. T. P. Ranch Co., supra; Marks v. American Brewing Co., 126 La. 666, 52 So. 983; Stendell v. Longshoremen's Protective Union Benev. Ass'n, 116 La. 974, 41 So. 228; Meyer v. Meyer Bros., 116 La. 456, 40 So. 794; Bartlett v. Fourton, 115 La. 26, 38 So. 882; Posner v. Southern Exhaust & Blow Pipe Co., 109 La. 658, 33 So. 641. This court will not disturb the ruling of the trial judge in his refusal to appoint a receiver except in a case where it clearly appears that the interests of the minority of stockholders are in imminent danger. Kinnebrew v. Louisiana Ice Co., supra. This is particularly true where the parties have a full and adequate remedy through other means. Carey v. Dalgarn Const. Co., 171 La. 246, 130 So. 344; Allen v. Llano Del Rio Co. of Nevada, 166 La. 77, 116 So. 675; Reynaud v. Uncle Sam Planting Co., 152 La. 811, 94 So. 405; Russell v. Citizens' Ice Co., 118 La. 442, 43 So. 44; Marcuse v. Gullett Gin Mfg., Co., 52 La.Ann. 1383, 27 So. 846.'

Accordingly, a receiver will not be appointed for a solvent corporation at the instance of a minority shareholder owning less than 20% Of its outstanding shares in the absence of a clear showing of fraud or breach of trust and then only when it is manifest that it should be done after consideration of whether such action would serve a useful purpose.

The question now presented is...