Kohler v. McClellan

• Decision Date: 08 August 1946
• Docket Number: No. 11574.,11574.
• Citation: 156 F.2d 908
• Parties: KOHLER v. McCLELLAN et al.
• Court: U.S. Court of Appeals — Fifth Circuit

156 F.2d 908 (1946)

KOHLER v. McCLELLAN et al.

No. 11574.

Circuit Court of Appeals, Fifth Circuit.

July 12, 1946.

Rehearing Denied August 8, 1946.

Sidney G. Roos and Bertrand I. Cahn, both of New Orleans, La., for appellant.

Monte M. Lemann, John St. Paul, Jr., Arthur A. Moreno, Azzo J. Plough, John E. Jackson, Baldwin J. Allen, Gibbons Burke, Wm. C. Dufour, and Paul B. Habans, all of New Orleans, La., for appellees.

Before HUTCHESON, WALLER, and LEE, Circuit Judges.

LEE, Circuit Judge.

Appellant, a citizen of Mississippi and a director and shareholder of the Crescent City Laundries, Inc., a Louisiana corporation, as petitioner below, brought this derivative action for the benefit of the Crescent City Laundries, Inc.,¹ hereafter called "Crescent," against certain of its officers, directors, and other persons and corporations, who are citizens of Louisiana and of other states except Mississippi, for breaches of trust, ultra vires acts, diversion and misappropriation of funds and properties, losses through collusion with third parties and "through acts of malfeasance, misfeasance, and nonfeasance."

By way of summary, the alleged illegal transactions that divested Crescent of its assets and caused it losses were:

1. The acquisition of the Chalmette Laundry by Crescent at an overappraised value, to the enrichment of one of defendants.

2. The acquisition of the linen supply business from Crescent by National Linen Service, Inc., to the enrichment of certain of defendants.

3. The payment by Crescent of dividends on its preferred stock when it had not earned said dividends.

4. The acquisition by Crescent of the Shreveport Laundries, Inc., and Atlantic Laundry, Inc., to the enrichment of certain of defendants.

5. The purchase of supplies for Crescent from Rudolph Ramelli, Inc., to the enrichment of certain of defendants.

6. The fraudulent acquisition of stock in Rudolph Ramelli, Inc., that should have been acquired for Crescent.

7. The acquisition by Crescent of the Peoples Laundry, a worthless organization.

8. The transfer of stock in National Linen Supply Corporation to certain of the defendants without consideration.

9. The acquisition by Crescent of insurance on the life of one of the defendants, premium payments being made by Crescent and principal being payable to the defendant's widow, heirs, or estate.

10. The payment by Crescent of certain bills for Union Products Co. owned by certain of defendants and the repayment of said loan partly in worthless stock.

11. The extension of excessive credit to the Roosevelt and Bienville Hotels, to the detriment of Crescent.

12. The payment of illegal, wrongful, and unauthorized increases in salaries, bonuses, and other benefits to certain officers and directors of Crescent.

13. The execution of a plan by B. C. McClellan and associates to default Crescent's bonds and to purchase, at great loss to Crescent and profit to themselves, the assets of Crescent at the consequential sheriff's sale.

The petitioner prayed for judgment in solido against all defendants, for the account of Crescent and the benefit of certain of its stockholders and of its creditors, in the sum of $4,178,000, or for such amount as may be found due the corporation as a result of the illegal acts of the defendants; and, in the alternative, that a receiver be appointed under the provisions of Act No. 159 of the Legislature of 1898, as amended.

Motions to dismiss were filed on various grounds, among which were: (1) The complaints failed to state a claim against the defendants upon which relief could be granted. (2) If the complaints stated a claim, the prescription of one, five, and ten years under the laws of Louisiana barred the claim. (3) The claim or claims asserted by petitioner in behalf of Crescent belong to, and are the property of, the N. O. Laundries, Inc. And (4) the court had no jurisdiction to appoint a receiver. From a judgment sustaining the motions to dismiss, the petitioner prosecuted this appeal.

The correctness of the ruling below is the question presented here.

The original and supplemental petitions make it plain that on July 9, 1942, "all the debtor's Crescent's choses in action and claims of any and every character against any and all persons whomsoever, whether or not shown upon the books of the debtors, and all of the debtor's cash, assets and effects of every name, character and description" were sold at public outcry by the civil sheriff of Orleans Parish, Louisiana, under a writ of fieri facias issued upon a money judgment against Crescent; that an attorney at law in New Orleans bought in the properties at the auction sale and transferred them to N. O. Laundries, Inc., a Louisiana corporation; and that title to all the claims against the defendants except those against B. C. McClellan and associates for their alleged fraudulent and illegal acts in connection with the sale passed to N. O. Laundries, Inc.

Appellant, however, argues that the seizure and sale of all of Crescent's choses in action and claims under the general description quoted above were made under too vague and indefinite a description to give notice of specific rights and credits seized or specific rights and credits sold; hence, that all choses in action and claims remained, following the seizure and sale, the property of Crescent, and are still its property, including the claims asserted against defendants in this suit. The descriptive words of the property seized and sold clearly show an intent to seize and sell all of the assets of Crescent of every kind and character. As between the parties to the sale, Crescent and purchaser, where it was purposed to seize and sell all assets, a general description broad enough to cover all assets was sufficient.² Only upon the seizure and sale of specific property must the description positively identify the property. In the absence of one party to the sale the description will not become any less inclusive. Therefore, in the absence of the owner of all claims of Crescent sold at the sheriff's sale, the court below could only adjudicate upon the claims connected with and arising out of the sale itself.

The allegations dealing with the formation of a plan by McClellan and associates to wreck the corporation and force a public sale of all of its assets so that they could buy the assets at great profit to themselves, and the execution of the plan — the consequential sale of Crescent's assets to their alleged agent and the transfer thereafter, at a large profit, of such assets to a corporation organized by them — set forth a cause of action (claim) which was not sold in the sale of Crescent's assets on July 9, 1942, and with respect to which the prescriptions pleaded³ are either not applicable or have not run. Who McClellan's associates were in the plan to wreck the corporation and effect a sale of Crescent's assets is not shown, and there is nothing in the complaints to connect the other defendants with the plan or with the execution of the plan. In dismissing the suit the court below acted properly as to all claims and all defendants except as to claims against the defendant McClellan arising out of the sale.

The petitioner asked the court to appoint a receiver to accomplish four objects: (1) to take over and hold the records and the papers of Crescent; (2) to join petitioner in the prosecution of this suit; (3) to prosecute such other separate and independent proceedings as may be ordered or directed by the court for the recovery of funds, property, and other assets of Crescent; and (4) to investigate and inquire into all proceedings in connection with the sale of all assets of the corporation in order to determine whether or not there was collusion or breach of trust by officers and directors of Crescent, to the end that proper and necessary proceedings may be taken to make recovery.

The petitioner as authority for the appointment of a receiver relies upon Dart's Louisiana General Statutes, Section 1209, and subsection 2 thereof, Acts of 1898, No. 159, Section 1. The statute provides:

"Authority to appoint receiver — Persons entitled to apply for receiver. — The several district courts of the state, and the civil district court of the parish of Orleans, are empowered to appoint receivers to take charge of the property and business of corporations domiciled in this state; and of the property of foreign corporations actually located herein, in the cases and under the conditions following, to-wit: Emphasis ours.

* * * * *

"2. At the instance of any stockholder or creditor, when the directors or other officers of the corporation are jeopardizing the rights of stockholders 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."

The United States Supreme Court⁴ has held:

"* * * the appointment of a receiver is merely an ancillary and incidental remedy. A receivership is not final relief. The appointment determines no substantive right, nor is it a step in the determination of such a right. It is a means of preserving property which may ultimately be applied toward the satisfaction of substantive rights.

"That a remedial right to proceed in a federal court sitting in equity cannot be enlarged by a state statute is likewise clear. * * *"

It is argued that the Louisiana statute, supra, makes the appointment of a receiver a substantive right and not merely a remedial right, and thus the doctrine of Pusey & Jones Co. v. Hanssen would not deprive the court below of jurisdiction to appoint a receiver under the state statutory provisions. In the case of Myers v. Occidental Oil Corp.,⁵ some authority for this proposition exists. It was there said:

"The complainants likewise rely on a number of Louisiana cases based upon a statute of that state which complainants assert is merely declaratory of pre-existing equitable rights. I think,...