Hitchcock v. Am. Pipe & Constr. Co.

• Decision Date: 15 November 1918
• Docket Number: No. 45/174.,45/174.
• Citation: 89 N.J.Eq. 440,105 A. 655
• Parties: HITCHCOCK v. AMERICAN PIPE & CONSTRUCTION CO.
• Court: New Jersey Court of Chancery

105 A. 655

89 N.J.Eq. 440

HITCHCOCK

v. AMERICAN PIPE & CONSTRUCTION CO.

No. 45/174.

Court of Chancery of New Jersey.

Nov. 15, 1918.

"To be officially reported."

Bill by Carles A. Hitchcock against the American Pipe & Construction Company, in which a receiver for defendant company was appointed, and was thereafter directed to transfer to corporation his rights in or over its property, and before order made, complainant's claim against receiver for legal services was rejected and complainant appeals. Compensation allowed complainant in a certain sum and costs, with direction.

Runyon & Autenrieth, of Jersey City (Henry W. Runyon, of Jersey City, of counsel), and Horace L. Cheyney, of New York City, for appellant.

Collins & Corbin, of Jersey City (Gilbert Collins, of Jersey City, of counsel), and Francis B. Bracken, of Philadelphia, for appellee.

LANE, V. C. The claim of the appellants, members of the bar, is for legal services rendered to complainant Hitchcock under the following circumstances:

Defendant, American Pipe and Construction Company, is a corporation of this state. On September 19, 1917, a bill in equity was filed in the United States District Court for the Eastern District of Pennsylvania by two stockholders of the corporation against the corporation. The bill alleged that the corporation was in financial difficulties, and that if creditors should be permitted to resort to legal process the result would be the immediate discontinuance of the business of defendant and the sacrifice of its assets, but that if the assets were properly conserved and administered for its creditors and stockholders under the direction of the court much of its property could be saved. It prayed for the appointment of a receiver, with power to operate and carry on the business, and for an injunction, enjoining defendant and all other persons from interfering with, transferring, selling, or disposing of any of its property, and for "other relief." On September 22d an answer was filed by the corporation, admitting the allegations in the bill. On the same day, the District Court ordered, adjudged, and decreed that Robert Wetherill, the president of the corporation, be appointed receiver of the defendant and of its property. He was given permission to operate the business, and all other persons were directed to turn over to him its property, and were enjoined from interfering, transferring, selling, or assigning any of its property. On October 22d the appointment was made permanent. So far as appears from the record no notice whatever was given to any person except defendant, which appeared and consented to all of the proceedings. On October 31, 1917, complainant, Hitchcock, a stockholder of the corporation (holding legal title in trust for another) intervened in the federal court for the purpose of questioning its jurisdiction. After hearing, on or about December 17th, the District Court refused to disturb its decree. Appeal was taken to the Circuit Court of Appeals, and that court on March 29, 1918, affirmed the determination of the District Court. 249 Fed. 23, 161 C. C. A. 83. Application was made to the United States Supreme Court for a writ of certiorari, which writ was granted, and the case is now in the Supreme Court undetermined. 247 U. S. 516, 38 Sup. Ct. 583, 62 L. Ed. 1244.

The grounds upon which the jurisdiction of the District Court was attacked were that that court had no power (at least in the absence of statute) at the Instance of a stockholder, to appoint a general receiver of a corporation foreign to the district in which the court was sitting, for the reason that such action would be an unwarranted interference with its internal affairs, and that the court was without power to appoint a receiver of a corporation where no other specific relief was prayed for.

Complainant on October 19th filed a bill in the United States District Court for the District of New Jersey, praying for an adjudication of insolvency and the appointment of a receiver under the provisions of section 65, etc., of an Act Concerning Corporations, Revision of 1896, 2 Comp. St. of N. J. page 1640. An order to show cause had been allowed but no final determination reached by the court. In June, 1918, complainant filed a bill in this court praying for an adjudication of insolvency and the appointment of a receiver under the statute; an order to show cause was allowed; the matter came on for hearing before me, and on July 2d I handed down my conclusions, which resulted in the appointment of a receiver. An order was made under the provisions of section 75 of the statute, directing creditors to bring in their claims. Representation was then made that defendant's business was in such shape as that the federal court of Pennsylvania might properly discharge its receiver, and that counsel intended to make application to this court for a discharge of the receiver here appointed under the provisions of section 69 of the act. Proceedings were taken in the federal court, which resulted in that court authorizing the discharge of the receiver, whereupon proceedings were taken in this court under the provisions of section 69, which resulted in an adjudication that the debts of the corporation had been paid or provided for, and that there remained sufficient capital to enable it to resume its business, and the receiver was directed to transfer to the corporation any rights which he might have in or over its property. This adjudication was made after an independent examination of the situation by this court, uninfluenced by the determination of the federal District Court. Before the order was made under the provisions of the sixty-ninth section the present claimants presented their claim to the receiver for services rendered to complainant in the federal District Court, both of Pennsylvania and New Jersey, which claim, at my suggestion, in order to save time, was disallowed by the receiver, and an appeal immediately taken by claimants. To secure payment of whatever amount might be allowed by the court upon a consideration of the appeal, and also to secure the payment of such counsel fees as this court might allow counsel for complainant for services rendered in this court, the corporation deposited collateral with the receiver as trustee.

The insistence of claimants is that throughout the proceedings in Pennsylvania complainant acted in the right of the corporation, that legal services which were rendered to him were in effect rendered to the corporation, and that either counsel have a direct claim upon the corporation for compensation for such legal services, or complainant Hitchcock has a claim which would include disbursements made and incurred by him for the legal services. Whichever way it is put the question to be determined is whether the corporation is liable for the value of legal services rendered in the Pennsylvania litigation to complainant, Hitchcock. If there is any question of procedure or as to by whom the claim should be presented, orders may be taken so that the meritorious question may be properly presented. No such question was raised by defendant, and it has been assumed that the meritorious question was properly before the court. In this case I ignore the fact that complainant Hitchcock is a dry trustee, and that counsel have no claim against him for compensation. He acted merely for convenience. The real beneficial owner of the stock is the mother of one of counsel (Mr. Cheyney), and although counsel may not have intended to charge her if unsuccessful, yet this does not dispose of the matter, for, as I will hereafter point out, the question as to whether the corporation should compensate counsel is one purely of equity. That counsel did not intend to charge a client if unsuccessful in a suit of this kind is of the utmost importance. It makes it incumbent upon the court to fully investigate to determine if the suit be of the nature commonly known as strike suits. And the caution with which this court proceeds in actions where there is suspicion that the stockholder is not acting in the real interest of the corporation is illustrated by General Investment Co. v. Bethlehem Steel Co., 88 N.J.Eq. 237, 102 Atl. 252. In that case an appeal was taken to the Court of Errors and Appeals. An application for a stay of the order of this court dissolving the temporary restraint was made. It was denied. The appeal was then, I understand, abandoned. For reasons which are apparent I think from what I shall hereafter state this case is not within that class.

In reaching a determination it is useful to consider the reasons which actuated the court in proceeding under the statute to appoint a receiver. They will be found embodied in written conclusions filed, not reported (and which will not be reported because of their length). The court held that: First, the bill filed in the District Court, alleging that the corporation was in such financial condition as that it could not meet its maturing obligations as they matured, and that if creditors were permitted to resort to legal process the business would be immediately discontinued and the assets of the defendant sacrificed, showed a condition of insolvency within the meaning of our statute (Empire State Trust Co. v. Trustees of William F. Fisher & Co., 67 N.J.Eq. 602, 60 Atl. 940, 3 Ann. Cas. 393; Wright v. American Finance & Securities Co., 84 N.J.Eq. 415, 93 Atl. 862; Id. 85 N.J.Eq. 181, 96 Atl. 387; Reinhardt v. Inter-State Tel. Co., 71 N.J.Eq. 70, 63 Atl. 1097; Catlin v. Vichachi Min. Co., 73 N.J.Eq. 286, 67 Atl. 194) which would justify an adjudication of insolvency and the appointment of a receiver; second, the bill in the District Court and the proofs before this court, showing that the business of the company had been conducted in such a manner as that it had been obliged to resort to a moratorium to protect its assets, that the management of its affairs had been for nine months in...