Martin Oil Co., Inc. v. Clokey

CourtSupreme Court of Alabama
Citation291 Ala. 39,277 So.2d 343
PartiesMARTIN OIL CO., INC., et al. v. David L. CLOKEY et al. Div. SC 278.
Decision Date03 May 1973

Lusk, Swann, Burns & Stivender, Gadsden, Wingo, Bibb, Foster, Conwell & Strickland, Birmingham, for appellants.

Inzer, Suttle, Inzer & Pruett, Gadsden, for appellee, David L. Clokey.

COLEMAN, Justice.

Appellants appeal from an order appointing a receiver for Martin Oil Co., Inc., an Alabama corporation. Title 7, § 758, Code 1940.

The appellants are the corporation, sometimes referred to as the company, and James D. Martin who is a stockholder and president of the corporation. He is herein referred to as Martin.

The appellees are David L. Clokey and Charles H. Fennelle. Both are stockholders and officers of the corporation. On January 23, 1973, they filed in the circuit court, in equity, an instrument entitled: 'APPLICATION FOR THE APPOINTMENT OF LIQUIDATING RECEIVER.'

Appellees, sometimes herein referred to as applicants, allege in the application that the principal place of business of the corporation is in Gadsden in Etowah County, Alabama. Appellants assert in brief that Martin resides in Gadsden. This assertion is not contradicted.

On January 29, 1973, the circuit court entered the order appointing a receiver pendente lite of all the property, assets, and estate of the corporation with authority to take immediate possession of said property including all books, papers, evidence of indebtedness, and all other property of every kind whatsoever belonging to the corporation. It is ordered that the receiver shall continue to carry on the business of the corporation pending further orders of the court.

Neither the corporation nor Martin received notice of the application until January 30, 1973, on which day the sheriff of Etowah County served a copy thereof on Martin by handing it to Martin. The record contains nothing to explain why no service was had during the period between the filing on January 23 and the service on January 30. The first prayer in the application is that the court appoint a receiver pendente lite to take custody of the assets of the corporation and manage and operate its business and safeguard its assets until hearing can be had.

The averments of the application are that the principal place of business of the corporation is in Gadsden; that it is engaged in distributing petroleum products; that annually the corporation sells approximately 7,000,000 gallons of such products and about $40,000.00 in tires, batteries, and accessories, and owns 'considerable real property' in Etowah and St. Clair Counties; that the directors of the corporation are Clokey, Fennelle, and Martin; that Martin is president, Clokey is vice-president, and Fennelle is secretary-treasurer of the corporation; that Clokey and Fennelle sell the products of the corporation and manage the 'day-to-day operations exclusive of its financial affairs'; that from the time the corporation began business, Martin has directed its financial affairs; that Clokey owns one-fourth of the capital stock of the corporation, Fennelle one-fourth, and Martin owns the remaining one-half with possible exception of one share which applicants are informed and believe might have been issued to Thomas N. Martin; that when Clokey and Fennelle became shareholders they relied on Martin's assurance that each of them would receive one-fourth of the shares of stock outstanding; that each was deceived in that Martin issued to Clokey treasury stock; and that by issuing treasury stock to Clokey, Martin increased his position of dominance in the company.

In Section 5 of the application, applicants aver that Martin has used his dominant position as chief financial officer to violate the salary agreement between the company and each officer; that Clokey and Fennelle, according to the agreement, are to receive, as salary, a sum equal to 13/15 of the sum paid to Martin as salary; that Martin directed, in August of 1971, that no further salary should be paid to any officer of the corporation, and, since that time, with the exception of salary for December, 1972, and January, 1973, collected by applicants on their own motion, no salary has been paid to either of them; that, however, during the time from August, 1971, Martin continued to withdraw from the company and divert to his own purposes approximately $8,000.00 per month.

Applicants aver that Martin's refusal to attend directors' meetings and to abide decisions made by the directors has created a deadlock in the management of company affairs and the business of the company is threatened with immediate and irreparable injury; that Martin has used his position to misappropriate assets of the company to his own use and the use of members of his immediate family; that company records disclose that during the fifteen months including and next preceding November, 1972, Martin fraudulently used for his own purposes approximately $115,000.00 of the company's funds as follows: $12,300.00 to pay debt on home in Maryland, title to which is in Martin, his family, or Martin Realty Co., a corporation, herein called Martin Realty, in which Martin has a substantial interest; $28,000.00 to purchase a truck stop owned by Martin or his family or Martin Realty; $31,000.00 spent to purchase or maintain filling stations owned by Martin, his family, or Martin Realty; $38,000.00 to purchase a restaurant similarly owned by Martin or his family; $11,200.00 to purchase a farm in Calhoun County, Alabama, also similarly owned by Martin or his family; $1,200.00 to pay Martin's pledge to a church; and $400.00 on Martin's campaign for United States Senator.

Applicants aver that Martin has utilized one company employee full time as a worker on Martin's farm and has used other company employees to maintain his home, his personally owned filling stations and his farm, and has made an unauthorized loan of company funds to a personal friend; that for the past eight or nine years Martin has followed a "long standing and consistent program of misappropriation of the Company's assets" and has brought the company "near to bankruptcy" and made it "operationally insolvent"; that the company is indebted to 'AMOCO' in excess of $100,000.00, presently due and payable, and does not have on hand funds sufficient to pay that debt in the immediate future; that company has had to operate on a restricted cash flow and cannot take advantage of discounts on purchases from its principal supplier equivalent to approximately $1,000.00 per month.

Applicants aver that:

'9. There is great danger that Martin, if not enjoined from so doing, will destroy, alter, misplace, or otherwise remove from the jurisdiction of this court the bookds and records of the Company so that a full understanding of the pertinent facts will be impossible by this court. Certain of the most important and pertinent records of the Company which are readily available, have been secured by the applicants and will be deposited by the Court's designated officer upon request.'

Applicants further aver that because of the history of mismanagement and fraud Martin has perpetrated upon applicants, they 'can no longer agree actively to be engaged in business with him'; that appointment of a receiver is necessary to collect the assets of the company, to operate its business pending liquidation, to recover from Martin, his family, or Martin Realty Company assets he has fraudulently misappropriated, and to supervise an audit of the company's books to account for the misappropriated assets.

In addition to the first prayer for appointment of receiver for corporation as mentioned above, applicants pray for temporary injunction to enjoin Martin from interfering with the receiver or disposing of his interest in the stock of the corporation, any service station in Etowah or St. Clair County, his Calhoun County farm, his Maryland residence, the Scruggs' Truck Stop, the Riverboat Restaurant, and his interest in Martin Realty.

Applicants pray also for temporary injunction enjoining Martin's wife from disposing of any interest she has in the property mentioned in the next preceding paragraph.

Applicants pray for injunction enjoining State National Bank of Alabama and American National Bank of Gadsden from permitting anyone, except the receiver, to withdraw funds deposited to the account of the company or to use the company's credit. Applicants pray also for injunction enjoining Martin Realty from disposing of its assets, including but not limited to cash and funds on deposit.

The injunctions prayed for were issued, but issuance of the injunctions is not assigned as error.

The order appointing receiver is assigned as error. Seven reasons are asserted and argued by respondents as grounds to support this assignment. Among these are those next considered.

Respondents argue that appointment of the receiver was unauthorized because no suit was pending when the appointment was made. This court has said:

'As a general rule, a receivership is purely ancillary to the main cause of action, and not an independent remedy, and therefore the jurisdiction of the court cannot be invoked to the appointment of a receiver, except in cases affecting infants, idiots, and lunatics, unless there is a pending suit brought to obtain some relief which the court has jurisdiction to grant. Crowder, Newman et al. v. Moone, 52 Ala. 221 (220); Harwell v. Potts, 80 Ala. 70; Howell & Howell v. Harris-Cortner & Co., 168 Ala. 383, 52 So. 935, Ann.Cas.1912B, 234; 4 Ann. Cas. note page 66; 23 R.C.L. p. 12, § 6; note 72 Am.St.Rep. 30.' Ex parte Goodwyn, 227 Ala. 173, 178, 149 So. 216, 220.

In Crowder v. Moone, supra, the appeal was from an order appointing a receiver one day before the bill was filed. In reversing, among other things, this court said:

'A suit in chancery is not commenced until the filing of the bill; thus it appears that this suit was...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT