Lowder v. All Star Mills, Inc.

• Decision Date: 06 January 1981
• Docket Number: 112,Nos. 67,s. 67
• Citation: 273 S.E.2d 247,301 N.C. 561
• Parties: Malcolm M. LOWDER, Mark T. Lowder and Dean A. Lowder v. ALL STAR MILLS, INC. et al Malcolm M. LOWDER v. ALL STAR MILLS, INC., Lowder Farms, Inc. et al
• Court: North Carolina Supreme Court

Page 247

273 S.E.2d 247

301 N.C. 561

Malcolm M. LOWDER, Mark T. Lowder and Dean A. Lowder v. ALL STAR MILLS, INC. et al

Malcolm M. LOWDER v. ALL STAR MILLS, INC., Lowder Farms, Inc. et al

Nos. 67, 112.

Supreme Court of North Carolina.

Jan. 6, 1981.

Moore & Van Allen by John T. Allred and Jeffrey J. Davis, Charlotte, for plaintiffs.

Delaney, Millette, Dearmon & McKnight, P.A., by Ernest S. Delaney, Jr., Charlotte, for defendants.

BRANCH, Chief Justice.

Defendants first contend that the initial order appointing operating receivers was void. They maintain that the statutory authorization for appointing an operating receiver for a corporation requires a finding that the corporation is either insolvent or "is in imminent danger of insolvency." G.S. 1-507.1. They concede that Finding of Fact Number 28 states specifically that "the corporate defendants are in imminent danger of becoming insolvent." However, they argue that there are no findings to support "this naked assertion." We disagree.

Statutory authority for the appointment of receivers of corporations is found in G.S. 1-507.1 which provides:

When a corporation becomes insolvent or suspends its ordinary business for want of funds or it is in imminent danger of insolvency ... a receiver may be appointed by the court under the same regulations that are provided by law for the appointment of receivers in other cases.

The trial court found, inter alia, as follows:

(a) Defendant W. Horace Lowder has converted assets of Lowder Farms, Inc., to his own beneficial use.

(b) Defendant W. Horace Lowder has converted assets of All Star Foods to his own beneficial use.

(c) The companies' Federal income tax affairs were so improperly managed by Defendant Lowder that in 1973 he was convicted by a jury in the United States District Court for the Middle District of North Carolina on one count of conspiracy to defraud the United States by obstructing the Internal Revenue Service in its task of computing and collecting revenue, by concealing the nature, extent and treatment of inter-corporate sales, purchases and transfers among the family corporations and secreting, destroying or refusing to produce supporting documents and records relating to such inter-corporate transactions (all in violation of 18 U.S.C. Sec. 371), and on two counts of knowingly filing false corporate income tax returns (all in violation of 26 U.S.C. Sec. 7206(1)). Six of the Lowder family companies Mills, Farms, Foods, Hatcheries, Industries, and Consolidated were indicted under the conspiracy count but the criminal charges against them were subsequently dismissed voluntarily by the government, prior to trial. On appeal defendant Lowder's convictions were upheld (United States v. Lowder, 492 F.2d 953 (4th Cir. 1974)) and certiorari was denied (419 U.S. 1092, 95 S.Ct. 685, 42 L.Ed.2d 685 (1974)). Defendant Lowder was fined $20,000 and sentenced to two years of imprisonment on each of the three counts (concurrent) and he actually served over one year until his parole in 1976. Said defendant continued his exclusive operational control and management of the companies while he was in prison. Defendant Lowder appeared pro se in the District Court criminal trial, and handled his appeal to the 4th Circuit Court of Appeals pro se as well.

(d) In addition to the criminal charges described above, civil tax deficiencies and assessments were made by the IRS against defendant Lowder, his father's estate, and against Mills, Farms, Hatcheries, Foods and Carolina for various tax years from 1950 through 1972. The aggregate amount of these claims against the five companies is $4,712,651.00 exclusive of penalties and interest (which could bring the total liability to almost $10 million) and also exclusive of such state income tax liabilities as may become due and payable after federal tax liabilities have been fully determined. Attached hereto as Exhibit B and incorporated by reference is a list of the pending United States Tax Court cases indicating the amounts claimed from the defendants in those cases and the tax years in question. These civil cases were continued from the time that defendant was indicted, until he completed serving his term in prison. In April, 1978, the cases were consolidated for trial and the trial was commenced. Defendant Lowder, pro se, is representing himself, his father's estate and the five defendant companies. The trial is in recess until February 20, 1979. Defendant lowder has failed and refused to retain legal counsel and accounting assistance in the defense of such cases notwithstanding that the original petitions were filed by competent counsel, Fleming, Robinson and Bradshaw, of Charlotte, and notwithstanding (i) the repeated urgings of the Tax Court judge and government counsel that he do so, and (ii) repeated warnings by such judge and counsel that his failure to do so is likely to substantially increase the tax liability which said companies will suffer. Defendant Lowder is not an attorney or otherwise experienced in tax or general litigation and has had no formal training which would equip him for the defense of the pending litigation against five of the Lowder family companies. The IRS investigation of the All Star group companies is continuing at the present time and further tax deficiencies and assessments may be asserted.

(e) Beginning in 1971 with his Federal grand jury indictment and continuing through the present, defendant W. Horace Lowder has grossly neglected his duties as manager of the Lowder family companies and has devoted his energies to his personal tax problems and to the tax problems of the Lowder family companies resulting from his management, all to the financial detriment of the Lowder family companies.

(f) Defendant Lowder has converted funds and other assets of Mills, Farms and their subsidiary and affiliated companies to his own beneficial use, has unlawfully transferred assets of such companies to other corporations, all the shares of which are issued to him, has diverted business opportunities from such companies to himself or to their corporations owned by him and has caused and permitted such companies to make unlawful loans to himself or to other corporations owned by him, all without the knowledge or consent of the other stockholders.

(g) Defendant Lowder has caused and permitted corporate stock of Mills and Farms to be unlawfully issued to himself, for his use and benefit, in disregard and violation of the preemptive rights of the plaintiffs and other stockholders; two such instances having occurred on October 23, 1978, when said defendant caused 1435 shares of Mills and 460 shares of Farms to be issued to himself.

(h) Defendant Lowder has unlawfully managed and operated Mills, Farms and their subsidiary and affiliated companies by failing and refusing to convene meetings of shareholders or directors of said companies. He admitted in this case that there have been no shareholders meetings for any of the corporate defendants since 1958.

(i) Defendant Lowder has unlawfully failed and refused to keep the corporate and business records and minutes required by law and has failed and refused to advise the shareholders of the condition of the several businesses.

(j) (i) On October 20, 1978, in accordance with NC GS Sec 55-38, plaintiff Malcolm M. Lowder made written demand upon defendant W. Horace Lowder for the production of the following documents of Mills, Farms and Consolidated for examination by said plaintiff at the principal office of said corporation:

(a) The books and records of account,

(b) The minutes of the stockholders' and directors meetings,

(c) The stock certificate books, and

(d) The corporate income tax returns for all fiscal years subsequent to 1952.

(ii) In response to this lawful demand defendant W. Horace Lowder (a) advised plaintiff Malcolm M. Lowder that he could resign from his position with Foods if he did not like the way said defendant was operating the family enterprise, and (b) furnished said plaintiff with the first and last pages of what appear to be the Federal income tax returns of the three corporations for the ten years since 1968 and with a typed list of the shareholders of the three corporations.

(iii) On November 9, 1978, plaintiff Malcolm M. Lowder made a second written demand upon defendant W. Horace Lowder advising him of the insufficiency of the documents produced, enclosing a copy of NC GS Sec 55-38 and reiterating his demand for the documents.

(iv) In response to this second demand the defendant W. Horace Lowder advised plaintiff Malcolm M. Lowder that said defendant believes he "had satisfied the purpose of your request of October 20th".

(k) W. Horace Lowder unlawfully discharged Malcolm Lowder from his duties with All Star Foods, Inc., in retaliation for the institution of this lawsuit.

(l) W. Horace Lowder has admitted borrowing large sums of money from several of the corporations, and these transactions were never approved by the shareholders or the directors, as required by NC GS Sec 55-22 and 55-30.

(m) Horace Lowder has admitted transferring the egg production of Lowder Farms, of which he owns 12%, to All Star Foods, of which he owns 51%, without consideration. This transfer resulted in a decline of Lowder Farms gross income from $1,800,000 to about $50,000 in the course of one year.

(n) During the period of time when this transfer was occurring, the net worth of Lowder Farms decreased by $69,000 and the net worth of All Star Foods increased by $465,000.

(o) Horace Lowder admitted having borrowed, on numerous occasions, from all of the corporate defendants, at one time or another, and admitted that All Star Hatcheries, which is owned wholly by him and his wife, had also borrowed from the other defendants.

(p) Horace Lowder also purchased 3,800 acres of land in Beaufort County, North Carolina, and various tracts in Stanly County, North Carolina, personally rather than on...