Lone Star Industries, Inc. v. Redwine

• Decision Date: 22 April 1985
• Docket Number: No. 84-3470,84-3470
• Citation: 757 F.2d 1544
• Parties: LONE STAR INDUSTRIES, INC., Plaintiff-Appellant v. Charles REDWINE, as Trustee of the OKC Corporation Liquidating Trust; Charles Redwine, individually; OKC Limited Partnership; Cloyce K. Box; and CKB & Associates, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1544

757 F.2d 1544

2 Fed.R.Serv.3d 40

LONE STAR INDUSTRIES, INC., Plaintiff-Appellant v. Charles REDWINE, as Trustee of the OKC Corporation Liquidating Trust; Charles Redwine, individually OKC Limited Partnership; Cloyce K Box; and CKB & Associates Inc., Defendants-Appellees.

No. 84-3470.

United States Court of Appeals, Fifth Circuit.

April 22, 1985.

Wilkinson & Wilkinson, John B. Wilkinson, New Orleans, La., Steven J. Rothschild, Skadden, Arps, Slate, Wilmington, for plaintiff-appellant.

Brice & Barron, John P. Lilly, Jim K. Choate, Dallas, Tex., for Redwine.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RUBIN, HILL, Circuit Judges, and HINOJOSA, ^* District Judge.

ROBERT MADDEN HILL, Circuit Judge:

Lone Star Industries, Inc. (Lone Star) brought this diversity action against Charles Redwine, as Trustee of OKC Corporation Liquidating Trust (the Trust); the OKC Limited Partnership; Cloyce K. Box (Box), individually; and CKB & Associates, Inc. The district court dismissed, 590 F.Supp. 547, holding that the OKC Corporation (OKC), a non-diverse party, was an indispensable party to Lone Star's action against all defendants. We reverse.

I.

OKC was a Delaware corporation with its principal place of business in Texas. On May 13, 1980, the shareholders of OKC adopted a plan of liquidation. The plan called for the complete liquidation and distribution of OKC's assets within the year, i.e., by May 12, 1981. The plan excepted from distribution those assets reasonably necessary to provide for payment of OKC's liabilities on the expenses of liquidation. If the distribution could not be completed within the year, the plan called for transfer of the remaining assets and liabilities to a trust created for the benefit of OKC's stockholders. On September 13, 1980, Lone Star purchased OKC's cement manufacturing plant in New Orleans, Louisiana. As part of the purchase agreement, OKC agreed to complete a dock facility under construction at the New Orleans plant. The agreement further required that construction be completed by March 31, 1981. On April 1, 1981, Lone Star sent a notice of default to OKC.

On May 5, 1981, anticipating that not all of OKC's assets would be distributed by May 12, the OKC Board of Directors adopted a resolution establishing the Trust proposed in the plan of liquidation and appointing Charles Redwine trustee. In the same resolution the Board approved transfer of OKC's assets and liabilities to the Trust.

On May 11, 1981, OKC filed its certificate of dissolution with the Secretary of State of Delaware. On the same day, the certificate and articles of incorporation of OKC Limited Partnership were filed in Texas. The articles named Cloyce Box and CKB & Associates, Inc. as general partners and OKC as a limited partner. ¹ OKC contributed substantial oil and gas interests to the partnership. OKC then distributed its limited partnership interest among its shareholders as a liquidating distribution. On May 12, 1981, OKC formally executed the Liquidating Trust Agreement (the Trust Agreement) pursuant to the May 5 resolution. The Trust Agreement provided that the Trustee assume all of OKC's liabilities and claims. On November 9, 1981, construction of the dock facility was finally completed.

In June 1982, Lone Star filed this action against Redwine, as trustee of the Liquidating Trust, seeking damages for breach of the dock construction agreement. In September 1983, upon learning of the insolvency of the Trust, Lone Star added as defendants, Redwine, in his individual capacity, the OKC Limited Partnership, Cloyce Box and CKB & Associates, Inc., seeking recovery of assets allegedly wrongfully transferred from OKC to the three added defendants.

On June 12, 1984, the district court granted the defendants' motion to dismiss on alternative theories, viz., failure to join a party needed for just adjudication, and failure to state a claim on which relief may be granted.

II.

On its own motion, the district court dismissed the action against the Trust because of the failure to join OKC, it being "regarded as indispensable" under Fed.R.Civ.P. 19(b). ² OKC could not feasibly be joined under Rule 19(a) because joinder would destroy diversity, both OKC and Lone Star being Delaware corporations. See supra note 2. All defendants agree with Lone Star that the court erred in dismissing the action on this theory. The court's holding rested on a single foundation: the invalidity of the Trust's assumption of OKC's liabilities (which included performance of the construction contract) pursuant to the Trust Agreement. Despite this, we are of the opinion that OKC could not have been indispensable. We therefore join the parties in the conclusion that dismissal was improper.

A.

Regardless of the validity of the creation of the Trust itself and that of the assignment of OKC's obligations under the dock facility construction contract, which we discuss below, OKC could not have been indispensable to this action. One fact is critical: in May 1984, one month before the district court ruled, OKC ceased to exist as a legal entity. Under Del.Code Ann. tit. 8, Sec. 278 (1983), ³ a corporation's legal existence is continued for three years, and only three years, after dissolution unless extended by order of court. ⁴ OKC filed its dissolution in May 1981 and, consequently, expired by operation of law in May 1984. Further, by this date OKC had also disposed of virtually all of its assets.

In light of OKC's expiration, it is clear that it could not have been indispensable under Fed.R.Civ.P. 19(b). ⁵ Nothing "prejudicial" to OKC or to those already parties could result from judgment in OKC's absence since, for all that appears, OKC had no assets or interests, legal or financial, that needed protection and since OKC would not be capable of suing the present parties in its own behalf at some later date. Thus, no "shaping of relief" would be necessary and whether or not "judgment rendered in [OKC's] absence [would] be adequate," addition of OKC as a party would not make it any more so. Finally, it is probable that no "adequate remedy" would be available to Lone Star if we dismiss for non-joinder since it is unlikely that OKC could be joined in a Delaware state court and since, as we are informed, the Delaware statute of limitations appears to have run on Lone Star's contract action.

The district court, however, reasoned that no adequate judgment could be rendered in OKC's absence because creation of the Trust violated Delaware law and, alternatively, because the assignment of the construction contract was invalid under the terms of the trust agreement and the contract itself. Thus, the court concluded, OKC was the only party that could have been liable on the contract and therefore was indispensable to Lone Star's suit. While we hold that even this could not render OKC itself indispensable, since it does not exist, we address this reasoning in order to refute any suggestion that it is OKC's legal successor (whomever that may be) that is indispensable. We note that the district court's reasoning is also directed at the very merits of the contract action to the extent that it undermines the possibility of the Trust's liability. That provides all the more reason for us to address the court's alternative holdings on this issue. We turn first to the court's conclusion that the Trust was not validly created.

B.

Assuming that the Trust came into existence on May 12, 1981, the day following dissolution of OKC itself, the district court held that under Delaware law appointment of the Trust after dissolution was an improper method of "winding up." However, Del.Code Ann. tit. 8, Sec. 278 provides that the corporation itself may conduct winding up, presumably through its officers and directors. See supra note 4; see also In re Citadel Industries, Inc., 423 A.2d 500, 504 (Del.Ch.1980). Section 279 of the same title provides for the alternative method of "winding up" by a court-appointed trustee, usually a director of the dissolved corporation, under the continuing supervision of the Delaware Court of Chancery. ⁶ We think it clear that Sec. 278 permits winding up by a trust such as the one employed here, that is duly created by the directors of the dissolved corporation.

Section 278 expressly continues for three years the corporate existence of a dissolved corporation for certain limited purposes, including discharging its liabilities, distributing its assets and generally winding up its affairs. Likewise, the directors continue in their capacities as directors after dissolution and therefore oversee the final acts of the corporation. Carle v. International Clay Products Co., 15 Del. 166, 132 A. 892, 892 (Del.Ch.1926). In effect, Sec. 278 prolongs the dissolved corporation's life, giving it authority to decide its own conclusion. See In re Citadel Industries, Inc., 423 A.2d 500, 504-05 (Del.Ch.1980); Harned v. Beacon Hill Real Estate Co., 9 Del.Ch. 411, 84 A. 229, 234-35 (Del.1912) (discussing statutory predecessor of Sec. 278).

While Sec. 278 undoubtedly limits the activities in which a dissolved corporation may engage, nothing in the statute purports to limit in any way the board's discretion as to how permissible activities--such as winding up--may be accomplished. Contrary to the interpretation of the district court, Sec. 278 does not require the directors or officers of a dissolved corporation to execute personally every aspect of winding up. Nor does it prohibit them from vesting such power in a trustee.

In re Citadel, 423 A.2d 500 (Del.Ch.1980), is not to the contrary. In Citadel the Delaware Court of Chancery described Sec. 278 as applying to situations "where the dissolved corporation has continuing legal existence and is capable of winding up its affairs through its own officers and directors." 423 A.2d at 504. That language was not intended to suggest that directors and officers...