Lowder v. All Star Mills, Inc.
| Decision Date | 06 December 1983 |
| Docket Number | No. 89PA83,89PA83 |
| Citation | 309 N.C. 695,309 S.E.2d 193 |
| Court | North Carolina Supreme Court |
| Parties | Malcolm M. LOWDER, Mark T. Lowder and Dean A. Lowder, Plaintiffs, v. ALL STAR MILLS, INC., Lowder Farms, Inc., Carolina Feed Mills, Inc., All Star Foods, Inc., All Star Hatcheries, Inc., All Star Industries, Inc., Tanglewood Farms, Inc., Consolidated Industries, Inc., Airglide, Inc., and W. Horace Lowder, Defendants, and Cynthia E. Lowder Peck, Michael W. Lowder, Douglas E. Lowder, Lois L. Hudson, Individually and as Guardian ad Litem for Steve H. Hudson, Bruce E. Hudson, Billy J. Hudson, Ellen H. Ballard, Jenell H. Ratterree, David P. Lowder, Judith R. Lowder Harrell, Emily P. Lowder Cornelius and Myron E. Lowder, Intervening Defendants. |
Moore, Van Allen & Allen by John T. Allred and Randel E. Phillips, Charlotte, for plaintiffs and receivers, appellants.
DeLaney, Millette, DeArmon and McKnight, P.A., by Ernest S. DeLaney, Charlotte, for defendants-appellees.
Hopkins, Hopkins & Tucker by William C. Tucker, Albemarle, for intervening defendants-appellees.
The nearly five years of litigation in this matter have generated a factual and procedural history that is voluminous and complex. Details not relevant to the issues we address here are set forth in our earlier opinion, supra.
We have granted discretionary review in this case for the limited purpose of considering two questions raised by plaintiffs: First, whether the Court of Appeals erred in holding that Moore and Van Allen, as counsel for plaintiffs, could not serve as counsel for the receivers; second, whether the Court of Appeals erred in holding that the trial court could not award counsel fees to Moore and Van Allen for their services to the receivers.
For reasons which follow, we agree with the Court of Appeals that the trial court committed error in appointing plaintiffs' counsel to represent the receivers in this action. Defendants' motions to vacate the order authorizing employment of Moore and Van Allen as counsel for the receivers should have been granted. We do not agree, however, that because Moore and Van Allen should not have been appointed in the first place, they are not now entitled to reasonable payment for beneficial services rendered to the receivership throughout the course of this action under the orders of the court. On this second issue, we reverse the Court of Appeals.
Plaintiffs argue that "the representation of the receivers by plaintiffs' counsel does not, in the posture of this case, create a conflict of interest." We have carefully reviewed the law of receivership, pertinent cases, including those cited by the parties, and the intricate series of facts both leading up to and comprising this litigation. We conclude that this case does present a very real and unavoidable conflict of interest for attorneys placed in the position of serving simultaneously the plaintiffs in this action and the court-appointed receivers. The interests of plaintiffs, defendant corporations, defendant Horace Lowder, intervening defendants, and receivers are not best served by upholding Judge Seay's February 1979 appointment of Moore and Van Allen to that troublesome position. We believe this is true despite the significant delay and additional expense that may result.
This Court has already upheld the decision by the trial judge to appoint co-receivers to serve during the pendency of the litigation. Lowder v. Mills, Inc., 301 N.C. 561, 577, 273 S.E.2d 247, 256 (1981). We begin our analysis of the proper role for the receivers' attorneys with a review of details in the case relevant to the 5 February 1979 order authorizing the receivership and the subsequent appointment of Moore and Van Allen as counsel for the receivers.
In his order Judge Seay assigned to co-receivers Henry C. Doby, Jr. and John Bahner stewardship over seven corporations: All Star Mills, Inc., Lowder Farms, Inc., All Star Foods, Inc., All Star Hatcheries, Inc., All Star Industries, Inc., Consolidated Industries, Inc., and Airglide, Inc. By order of the court, upon qualification of the receivers, title to all of the corporate defendants' property, whether real, personal, tangible or intangible, immediately vested in these receivers. They were ordered to take possession of the assets, facilities, and offices of the corporate defendants, together with all of their records, correspondence, books of account, corporate minute books, and all other corporate records. They were to continue, manage, and operate the businesses until further order of the court.
While the trial court found that these companies collectively constituted one integrated business enterprise and directed the receivers to continue to operate them as such, there was evidence before the court that each corporation was a separate entity, with separate articles of incorporation, its own set of stockholders, its own set of creditors, its own tax identification number, and separate state and federal tax returns.
Judge Seay found that "[d]efendant W. Horace Lowder has at all times material to this suit exercised sole management responsibility for the business affairs of all the corporate defendants and has excluded plaintiff and other shareholders of said companies from participation in their management." The order appointing operating receivers for all seven corporations and enjoining defendant Lowder from continued control of their affairs rested on numerous findings of his misconduct set forth in Lowder v. Mills, Inc., supra, 301 N.C. 561, 273 S.E.2d 247.
In the order appointing counsel for the receivers, the trial court stated:
The Court has concluded that, in the interest of justice, and in order to minimize professional expenses which will be paid by the corporations as a result of this receivership, the law firm of Moore and Van Allen should be employed by the Receivers to render legal advice to them concerning day-to-day activities, and the marshalling of assets, and pursuit of claims against third parties, and for the purpose of continuing the prosecution of this action to the end that any assets which should belong to All Star Mills or Lowder Farms are identified, and returned to them.
Because plaintiffs bring this action derivatively, they have interests that are identical to those of All Star Mills, and Lowder Farms. As a result, the Court finds as a fact that Moore and Van Allen has no conflict to prevent them from representing the Receivers.
....
The Court has considered this matter at length, and has had numerous, lengthy discussions with the Receivers, and has concluded that this approach is the only viable approach to the problems currently presented. The only potential conflict which the Court sees in this arrangement is that the Receivers act on behalf of all the corporations (except Carolina Feed Mills, Inc.), even though two of them may have claims against the rest. The Court finds as a fact, however, that no current conflict exists. If an actual conflict appears to arise in the course of this litigation, the parties are directed to report the matter to the Court so that it may be dealt with at that time.
Defendants had vigorously opposed the presence of the Moore and Van Allen firm in this lawsuit, not only as counsel for the receivers but, also and foremostly, as counsel for the plaintiffs. We briefly note the facts leading to the firm's involvement in the case.
The record shows that prior to the filing of this action, when defendant Horace Lowder was appealing from his income tax evasion conviction, he retained the law firm of Brown, Brown and Brown. The matters in which Mr. R.L. Brown III represented Mr. Lowder in his criminal case are now involved in this action. Plaintiff Malcolm Lowder, dissatisfied with the manner in which the family companies were being managed, conferred with R.L. Brown in regard to these matters. In determining to bring this action, he retained Mr. Brown, who then associated the Moore and Van Allen firm. The latter firm signed the complaint as plaintiffs' counsel, but the Brown firm will receive a part of any contingent fee received by Moore, Van Allen and Allen. Plaintiffs' attorneys are being paid by the individual plaintiffs. There was evidence before the court that plaintiff Malcolm M. Lowder has agreed to pay Moore and Van Allen on an hourly basis in the event fees are not recovered from the corporations. This fee arrangement is in turn "subject to contingencies which will increase amounts due upon a successful conclusion of the shareholders' derivative action, state court receivership proceedings, bankruptcy proceedings and other related litigation."
The Court of Appeals has rejected defendants' conflict of interest arguments with respect to the firm's role as counsel for plaintiffs. Lowder v. Mills, Inc., 60 N.C.App. 275, 282, 300 S.E.2d 230, 234 (1983). We do not disturb or reconsider that part of its decision here.
Against this factual background of the case, we now review and apply the well settled law of receivership to determine the two issues before us.
The judicial creation of a receivership is a harsh, drastic, and extraordinary remedy. Lowder v. Mills, Inc., supra, 301 N.C. 561, 273 S.E.2d 247. In an interlocutory order, it takes custody of a defendant's property out of his hands. Upon his appointment by the court, the receiver is vested with title to all the real and personal property of the defendant corporation. While it does not affect the existence of the corporation, it does, however, end the powers of the stockholders and directors. They can make no contract to bind the corporation after the appointment. 1 Clark, Law of Receivers § 59 (3d ed. 1959). See also Golding, Corporate Receivership in North Carolina, 32 N.C.L.Rev. 149 (1954).
With respect to the court, the parties to the suit in which he is appointed, creditors and other interested persons, and the property in receivership, the position of the...
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