Oscar C. Wright Co. v. Steenman
| Citation | 71 S.W.2d 991,254 Ky. 381 |
| Parties | OSCAR C. WRIGHT CO. et al. v. STEENMAN. |
| Decision Date | 22 May 1934 |
| Court | Court of Appeals of Kentucky |
Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division.
Action by Leonard D. Steenman against the Oscar C. Wright Company and others, wherein intervening petitions were filed. From an order appointing a receiver for defendants, defendants appeal.
Affirmed.
Trabue Doolan, Helm & Helm and Lukins & Jones, all of Louisville for appellants.
Woodward Hamilton & Hobson, and Oldham Clarke, all of Louisville, for appellee.
This appeal requires the review of an order appointing a receiver of "all and singular property, rights, contracts, money credits, choses in action and effects, including all stock books, certificates of interest, bonds, securities, furniture, fixtures, books of accounts and all records" of the Kentucky Electric Development Company, Public Utilities Development Company, Incorporated, Oscar C. Wright Company, Utilities Investment Corporation, Utilities Extension Corporation, and Utilities Engineering Corporation. The order appointing the receiver at length and in detail lists the authority, the privileges, rights, and duties of the receiver.
The action was brought by L. D. Steenman, a former officer of one or more of the corporations.
Intervening petitions were filed in behalf of four other persons who claimed to be stockholders of the Oscar C. Wright Company, Public Utilities Development Company, Utilities Development Company of Indiana, and Kentucky Electric Development Company.
Eight corporations were organized and closely affiliated and practically directed by one individual, Oscar C. Wright. The parent corporation of the structure was the Kentucky Electric Development Company and, at the time of the filing of this action, engaged in the business of supplying electric power to rural communities in Kentucky. From its own power plants together with the electricity purchased of the Kentucky Utilities Company, it supplied its customers. It manufactured and sold ice in only one locality. Its tangible assets now consist of this ice plant, its electric power plants, and distributing power lines; its intangibles consist of franchises and its right to call on its affiliated corporations for those extensions into new territory prospects for new or additional business. At the institution of this action it had outstanding 1,500 shares of no par, common, and 3,256 shares of 6 per cent. par preferred, stock. Until shortly before the institution of the action, the general public owned $325,600 worth of the preferred stock. Recently, the Public Utilities Development Company has acquired 1,402 shares of the preferred stock, leaving the public owning 1,854 of the preferred, and 98 shares of the common stock; the balance of the common is held by the Public Utilities Development Company. The preferred has no right to vote unless, and until, two successive dividends have been passed. The affairs and destiny of the Kentucky Electric Development Company are in the hands of the Public Utilities Development Company through its practically sole ownership of the voting power of the common stock. The latter has no tangible property. Its assets consist entirely of the 1,402 shares of the Kentucky Electric Development Company common, and a few hundred shares of its preferred and the stock owned by it in the other affiliated corporations. The public owns 2,735 shares of the common of the Public Utilities Development Company and 63,201 are owned by the Oscar C. Wright Company. In this manner the Public Utilities Development Company controls the Kentucky Electric Development Company and in turn is not only entirely owned by the Oscar C. Wright Company, but practically controlled by it. The Oscar C. Wright Company has issued Class A, and common, stock, and no preferred. Class A, except under certain conditions, has no voting power; hence the holders of the common stock of the Oscar C. Wright Company by voting their stock have the management of both the Kentucky Electric Development Company and the Public Utilities Development Company.
There are outstanding of that stock 12,259 shares, of which 12,038 are held by the public. There are outstanding 6,024 shares of Class A, the public owning 3,924 shares; the remainder is held by the Utilities Investment Corporation, an affiliated corporation. In this manner the Oscar C. Wright Company is the holding company for the Public Utilities Development Company which exercises the control of the operation of the Kentucky Electric Development Company.
It is substantially shown that the only income with which to pay dividends on these different stocks are the earnings of the Kentucky Electric Development Company. Its gross earnings in 1931 were around $60,000. The income on all of these stocks is derived from the Kentucky Electric Development Company. Its net earnings for 1932 was about $26,000, out of which $3,700 was expended in the payment of interest on the $75,000 worth of bonds secured by a lien on its plant at Munfordsville, Ky. and guaranteed by the Kentucky Electric Development, leaving about $22,000 for distribution to its stockholders in 1932, not considering its unpaid liabilities. $19,536 is required to pay the dividends on 3,256 shares of the Kentucky Electric Development Company preferred, leaving about $2,700 for the Public Utilities Development Company to pay the dividends on 1,402 shares of the former owned by the latter. It is indeed apparent the $2,700 so received by the Public Utilities Development Company would not pay the dividends on the 2,846 shares of its stock owned by the public. It is substantially shown, as matters now stand, if all past-due, direct and contingent liabilities of the Kentucky Electric Development Company were paid, the holders of the Public Utilities Development Company common and Oscar C. Wright Company common and Class A stock could receive nothing.
It is shown the operations of the Kentucky Electric Development Company until 1931 were accompanied by intensive, successive drives to sell to the public, the Oscar C. Wright Company and the Kentucky Electric Development Company. The campaign was energetically carried on by the Utilities Investment Corporation, which is owned exclusively by the Oscar C. Wright Company. The commissions received by the former and indirectly by the Oscar C. Wright Company, in the form of dividends, were its only source of income. The Kentucky Electric Development Company was controlled, managed, and supervised by the Oscar C. Wright Company, the latter charging a fee for its services; in the year 1930, the value of these services was $20,400.
The Indiana Development Company, a corporation organized under the laws of the state of Indiana, was originally owned by the Kentucky Electric Development Company. The purpose of organizing the Indiana corporation was to extend into Indiana the activities of this group of corporations. The accomplishments of the Indiana corporation have been to sell about $22,000 worth of its stock and lend the money so obtained to the Oscar C. Wright Company. Its only assets consist of notes evidencing its loan to the Oscar C. Wright Company and a small lot of uncollected subscriptions. The Utilities Appliance Company is owned by the Kentucky Electric Development Company. The purpose of the organization of the Utilities Appliance Company was to engage in the business of retailing electrical appliances and installing electrical fixtures, either wholesale or retail. Proceedings are pending to have the Utilities Appliance Company declared a bankrupt.
The only income this group of corporations can receive, or expect, is the net earnings of the Kentucky Electric Development Company, which will be exhausted by the prior claims of the Kentucky Electric Development Company and the Public Utilities Development Company preferred stock. The Class A of the Oscar C. Wright Company and the common of the Public Utilities Development Company are valueless and will continue so to be until this group of corporations can resume electrifying new communities with the proceeds of stock sales and turning them over to the Kentucky Electric Development Company for profitable operation.
Steenman in his testimony fixed the liability of certain ones of this group of corpotions to him at $80,000. It is conceded by Oscar C. Wright, in his testimony, that the debts of Steenman aggregated $30,000....
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