Maxwell v. Enterprise Wall Paper Mfg. Co., No. 8156.

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Writing for the Court: BIGGS, MARIS, and GOODRICH, Circuit
• Citation: 131 F.2d 400
• Parties: MAXWELL v. ENTERPRISE WALL PAPER MFG. CO. et al.
• Docket Number: No. 8156.
• Decision Date: 04 November 1942

131 F.2d 400 (1942)

MAXWELL
v.
ENTERPRISE WALL PAPER MFG. CO. et al.

No. 8156.

Circuit Court of Appeals, Third Circuit.

Argued October 23, 1942.

Decided November 4, 1942.

131 F.2d 401

David Bortin, of Philadelphia, Pa., for appellants.

John D. M. Hamilton, of Philadelphia, Pa., for appellees.

Before BIGGS, MARIS, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

This is an appeal from an order appointing receivers for the Enterprise Wall Paper Mfg. Co. Plaintiff is a minority shareholder of the company. The complaint was filed on September 10, 1942. Application for the appointment of a receiver accompanied it and receivers were appointed by the District Court on the same day without notice to any of the defendants. While the defendants' argument in this Court has raised a number of issues, we think the controlling question is whether the facts alleged in the verified complaint and supporting affidavit justified the exercise of discretion by the trial court in the appointment of the receivers. Defendants have filed no answer or other pleading which, by introducing questions of fact, has lost them their right to raise the question of the sufficiency of the plaintiff's complaint and affidavit to support the appointment.

131 F.2d 402

A preliminary point which we must consider, although not raised by either party, is whether the Court may entertain this appeal. Appellate jurisdiction in such cases is governed by § 129 of the Judicial Code,¹ which provides that "Where, upon a hearing in a district court, * * * an interlocutory order or decree is made appointing a receiver, * * * an appeal may be taken from such interlocutory order or decree to the circuit court of appeals;". Is an interlocutory order appointing a receiver one made "upon a hearing" within the meaning of § 129 when it is issued upon the complaint, affidavit, and argument of counsel for the plaintiff, without notice to his opponents? The authorities are sharply divided upon this question. Some maintain that the statute contemplates a hearing wherein both sides are present to plead, argue and present evidence upon the relief sought.² The first and fifth circuits have held that less than this may constitute a hearing for the purposes of appellate jurisdiction.³ The manifest purpose of the statute is to enable a litigant to seek prompt review in an appellate court from an order or decree which in most instances is effective upon its rendition and is drastic and far reaching in effect. With this as its basis, it is unlikely that Congress meant to exclude hearings where the order is granted by a court after reading the papers and listening to the arguments of the complainant. Although one-sided, we think that such proceedings are nevertheless a hearing within the meaning of § 129 for the purposes of appellate jurisdiction.

A second preliminary point, also not raised by the parties, is whether state or federal law governs their rights herein. The corporate defendant is a Pennsylvania corporation and the rights and duties of the shareholders among themselves and the corporation are measured by Pennsylvania law. Restatement, Conflict of Laws (1934) § 199, comment a; see also §§ 192-202. There is no suggestion that the acts which the defendants are alleged to have done would not, if proved, entitle plaintiff to relief. What form of equitable relief a plaintiff is to be given by a federal court for infringement of his rights, we have held to be a matter to be determined by federal law, not state decisions. Black & Yates, Inc., v. Mahogany Ass'n, Inc., 3 Cir., 1942, 129 F.2d 227, certiorari denied 1942, 63 S.Ct. 76, 87 L.Ed. ___. In this case, however, we do not think that there is any difference between the principles determining the appointment of receivers as enunciated by Pennsylvania courts⁴ and

131 F.2d 403

those found in the federal decisions cited below

We start with the undisputed premise that the granting or refusal of the appointment of a receiver is, in the first instance, a matter of discretion for the lower court and that we are not to substitute our discretion for that of the trial judge.⁵ Equally undisputed, however, is the limitation that discretion is governed by legal principles applicable to the situation and if we deem them to have been departed from, it is our duty to correct the error. Likewise, it has been judicially noted almost innumerable times that the appointment of a receiver is an extraordinary, a drastic and, in the words of the Pennsylvania Court,⁶ an "heroic" remedy. It is not to be resorted to if milder measures will give the plaintiff, whether creditor or shareholder, adequate protection for his rights.⁷

The caution which should surround the appointment of a receiver is heightened when such appointment is sought peremptorily in a proceeding in which the opposition has neither notice nor opportunity to be heard. In the case of "actual emergency" it may be done. Tennessee Pub. Co. v. Carpenter, 6 Cir., 1938, 100 F.2d 728, 732. It is to be "exercised sparingly and with great caution, and only under extreme and exceptional circumstances." Central West Public Service Company v. Craig, 8 Cir., 1934, 70 F.2d 427, 429, 430. The courts speak of it as proper only in a case of "imperious necessity, when the right of the complainant, on the showing made by him, is undoubted, and when such relief and protection can be given in no other way." Cabaniss v. Reco Min. Co., 5 Cir., 1902, 116 F. 318, 324; Joseph Dry Goods Co. v. Hecht, 5 Cir., 1903, 120 F. 760; Mann v. Gaddie, 5 Cir., 1907, 158 F. 42. Similar language is found in Kolb Coal Co. v. Sauter, 7 Cir., 1924, 295 F. 690. Language to this general effect is found in the decisions of many courts, both state and federal.⁸ The phraseology may vary, but the enunciation of the general point of view is clear

131 F.2d 404

enough. Our immediate question is whether that point of view which may accurately be described as a controlling principle of law was observed in the instant case

The plaintiff is a minority shareholder of the Enterprise Wall Paper Mfg. Co. He complains of mismanagement of the corporation by one of the individual defendants in ways to be noted presently. He does not allege that because of this mismanagement or otherwise the corporation is insolvent or is in danger of becoming so. Indeed, by the report of accountants, subsequently brought into the record by stipulation between...