Hancock-Nelson Mercantile Co. v. Weisman

• Decision Date: 07 December 1983
• Docket Number: No. CX-83-1767.,CX-83-1767.
• Parties: HANCOCK-NELSON MERCANTILE COMPANY, INC., et al., Petitioners, v. Ronald WEISMAN, Respondent.
• Court: Minnesota Court of Appeals

340 N.W.2d 866

HANCOCK-NELSON MERCANTILE COMPANY, INC., et al., Petitioners, v. Ronald WEISMAN, Respondent.

No. CX-83-1767.

Court of Appeals of Minnesota.

December 7, 1983.

Sidney P. Abramson, Richard B. Allyn, Minneapolis, for petitioners.

Frank R. Berman, Minneapolis, for respondent.

Heard, considered and decided by POPOVICH, C.J., and PARKER and WOZNIAK, JJ.

OPINION

POPOVICH, Chief Judge.

Application for a writ of prohibition pursuant to Civil Appellate Procedure Rule 120 to restrain the entry of the order of Judge Crane Winton of the Hennepin County District Court dated November 9, 1983 and stayed to November 11, 1983 to permit this application. At oral argument the parties agreed to a stay until this Court acted. Judge Winton's order found probable cause to believe the petitioners were in criminal contempt by violating Minn.Stat. Chapter 588 and had violated the court's order appointing a receiver to operate a corporation in which the parties were stockholders. He referred the case to the Hennepin County Attorney for investigation and such further action as might be deemed appropriate. A writ will not be granted and the petition is denied.

FACTS

Petitioner Farmhouse Foods Corporation (Farmhouse) is a Wisconsin corporation engaged in the business of wholesaling grocery goods. Petitioner Hancock-Nelson Mercantile Company (Hancock) located in St. Paul, Minnesota, is a division of Farmhouse. In September of 1982, Farmhouse and respondent R. Weisman formed petitioner R. Weisman Company, Inc. (the Company) a Minnesota corporation located in St. Paul. It is a wholesale distributor of dry grocery goods servicing small retailers. Most of the merchandise sold by the Company is supplied to it by Hancock. From November of 1982 through August 13, 1983, respondent was a stockholder, director, president and general manager of the Company.

In March of 1983, the Company applied for and obtained from Norwest Bank Metro South a $350,000 credit line, payable on demand. The credit line was secured by inventory in the Company warehouse and was personally guaranteed by the respondent. Thereafter, the parties corporate relationship became disputed.

In August of 1983, Farmhouse notified respondent of a shareholders' and directors' meeting for the purpose of electing new directors and officers. Upon receiving notice of the meeting, respondent commenced action and on August 12, moved for a temporary injunction enjoining the petitioners from holding the meeting. The motion was denied by order of Hennepin County District Judge Eugene Minenko. At the August 13 meeting respondent R. Weisman was purportedly removed as director and president of the Company. Richard McElderry, an employee of Farmhouse, was purportedly elected president.

On September 2, 1983, respondent moved to enjoin the actions taken at the August 13 meeting and, in the alternative, sought appointment of a receiver for the Company.

Judge Winton denied the motion for an injunction but ordered appointment of a receiver. In pertinent part, Judge Winton's order of September 2, 1983 stated:

1. The Court finding that an exigency exists, does hereby appoint as a receiver of R. Weisman Company, a Minnesota corporation, Byron Frank, to serve until further order of the Court.

2. Said receiver shall exercise all powers authorized by law and the Court does hereby order a further hearing to determine specific powers of the receiver before the judge assigned to this case.

* * * * * *

7. The receiver shall operate the business and make all necessary day-to-day business decisions, until his responsibilities are defined by further order of this Court.

8. This case is referred to the Chief Judge for assignment.

Contrary to Judge Winton's recommendation, Chief Judge Patrick Fitzgerald on September 14, 1983 denied a motion to assign the matter to a specific judge.

On October 11, 1983, the Company executed and filed a financing statement in favor of Hancock under Article 9 of the Uniform Commercial Code with the Secretary of State. Through execution of this statement, Hancock obtained a security interest on "all inventory which is sold or delivered". Notice was provided to the bank after the filing.

The Uniform Commercial Code financing statement form was signed on behalf of the Company by its "president," Richard McElderry. The Company did not obtain the receiver's signature nor was he notified of it until October 13, 1983. At the hearing the receiver indicated he would not have signed the financing agreement.

On October 12, the bank demanded payment of $85,500 the amount of money still owing on the Company's line of credit. The amount, however, was paid from the Company's account with the bank thus affecting the liquidity of the receivership, and the Company became insolvent.

On November 4, 1983, respondent brought a motion before Judge Winton seeking to have all the petitioners found in civil and criminal contempt for entering into the financing statement. At the same hearing, Byron Frank, the operating receiver moved to be named as liquidating receiver. Judge Winton found probable cause to believe petitioners committed acts of criminal contempt by violating Minn.Stat. Chapter 588. He referred the matter to the county attorney for investigation and appropriate action.

Petitioners now seek a writ of prohibition to prevent the Hennepin County District Court from entering the order and from proceeding any further with the action for criminal contempt.

ISSUES

1. Should a writ of prohibition be issued to restrain a court for finding probable cause to believe its order appointing a receiver was violated and referring the matter to the county attorney for investigation and such action as may be deemed appropriate?

2. Whether there is probable cause to believe criminal contempt occurred for willfully violating an order of the Court where the order does not specifically prohibit entering into a financing statement without consent of an operating receiver?

ANALYSIS

Before a writ of prohibition may issue three essential elements must be shown to exist: (1) the court, officer or person against whom it is issued must be about to exercise judicial or quasi-judicial power; (2) the exercise of such power must be unauthorized by law; and (3) the exercise of such power will result in injury for which there is no other adequate remedy at law. State v. Hartman, 261 Minn. 314, 112 N.W.2d 340 (1961); Bellows v. Ericson, 233 Minn. 320, 46 N.W.2d 654 (1951); Nemo v. Hotel and Restaurant Employees' Local No. 556, 227 Minn. 263, 35 N.W.2d 337 (1948).

As the underlying order of Judge Winton has been stayed to permit hearing on the petition, the first requirement has been met.

Petitioners argue that the second requirement is met because the underlying order of Judge Winton appointing the receiver is so vague and indefinite as to make willful disobedience of that order impossible, citing, Mr. Steak, Inc. v. Sandquist Steaks, Inc., 309 Minn. 408, 245 N.W.2d 837 (1976), where the Minnesota Supreme Court outlined the specificity required for a finding of civil contempt:

In addressing the limits on a trial judge's exercise of civil contempt powers, we stated that one essential prerequisite is that the prior decree or order of a court sought to be enforced by contempt must clearly define the acts to be performed by the alleged contemnor.

Id. at 411, 245 N.W.2d at 838.

Minnesota Statutes 588.20 CRIMINAL CONTEMPT provides:

Every person who shall commit a contempt of court, of any one of the following kinds, shall be guilty of a misdemeanor:

(1) Disorderly, contemptuous, or insolent behavior, committed during the sitting of the court, in its immediate view and presence, and directly tending to interrupt its proceedings, or to impair the respect due to its authority;

(2) Behavior of like character in the presence of a referee, while actually engaged in a trial or hearing, pursuant to an order of court, or in the presence of a jury while actually sitting for the trial of a case, or upon an inquest or other proceeding authorized by law;

(3) Breach of the peace, noise, or other disturbance directly tending to interrupt the proceedings of a court, jury, or referee;

(4) Willful disobedience to the lawful process or other mandate of a court;

(5) Resistance willfully offered to its lawful process or other mandate;

(6) Contumacious and unlawful refusal to be sworn as a witness, or, after being sworn, to answer any legal and proper interrogatory;

(7) Publication of a false or grossly inaccurate report of its proceedings.

No person shall be punished as herein provided for publishing a true, full, and fair report of a trial, argument, decision, or other proceeding had in court. (Emphasis added.)

Petitioners argue that, in order to find them in contempt of the order, the requirement of clarity would require the Court to have stated with specificity that no one other than the receiver might enter into a security agreement.

We hold that, under the facts of this case, such specificity is not required as a matter of law. The receiver was charged with operating the business and making all necessary day-to-day business decisions of the Company. A necessary implication in that charge is the power and duty to execute or approve financing statements or any other decision affecting the liquidity or solvency of the Company. It is within the discretion of the court to authorize a receiver to continue the business of a corporation temporarily. Sibley County Bank v. Crescent Milling Co., 161 Minn. 360, 201 N.W. 618 (1925). A receiver's powers are defined by the orders of the court and include authority as may reasonably or necessarily be implied for such orders. Sutton v. Schnack, 224 Iowa 251, 275 N.W. 870 (1937).

In Sibley County Bank, supra, the Minnesota Supreme Court said:

From the record it plainly appears that the only idea in the receiver operating the business was to better keep the plant...