State ex rel. Fatzer v. Molitor

• Decision Date: 07 November 1953
• Docket Number: No. 39273,39273
• Parties: STATE ex rel. FATZER, Atty.Gen., et al. v. MOLITOR et al.
• Court: Kansas Supreme Court

Page 207

263 P.2d 207

175 Kan. 317

STATE ex rel. FATZER, Atty.Gen., et al. v. MOLITOR et al.

No. 39273.

Supreme Court of Kansas.

Nov. 7, 1953.

Syllabus by the Court.

In an action to enjoin defendants from engaging in an unlawful practice of lending money at usurious rates of interest and for the appointment of a receiver to take possession of and assume control over defendants' business where the appeal is from the order appointing a receiver and from no other order, the record is examined and it is held that (a) this appeal in no way involves the power of the state to obtain an order enjoining the defendants from engaging in an alleged unlawful practice; (b) the sole issue presented by this appeal is whether a receiver was properly appointed to take complete possession of and control over defendants' property; (c) a receiver to take possession of and dominion over the property of a defendant may only be appointed upon evidence; (d) such evidence by the usages of courts of equity may be by witnesses or affidavits; (e) in such a case a petition properly verified may be used as evidence; and (f) a petition verified on information and belief only is not an affidavit and is no evidence whatever upon which to base the appointment of a receiver.

Melvin R. Quinlan, Topeka, argued for Gordon E. Zimmerman, and John S. Dean, Jr., Topeka, was with him on the briefs for appellants.

Harold R. Fatzer, Atty. Gen., and Thomas M. Evans, Asst. Atty. Gen., both argued the cause and Paul Wilson, Asst. Atty. Gen., Doral H. Hawks, County Attorney, and Maurice D. Freidberg, Asst. County Atty., Topeka, were with them on the briefs for appellees.

SMITH, Justice.

This was an action to enjoin defendants from making loans at a rate of interest greater than permitted by law. The petition asked for a restraining order, a permanent injunction and for the appointment of a receiver. The court on August 5, 1953, appointed a receiver ex parte and without notice to the defendants and ordered him to take into his possession all records, papers, moneys, bank accounts, assets and other property belonging to the defendants and used in connection with the loaning of money and to determine the exact situation in respect to each loan the defendants had made. On the same day the trial court made an order restraining the defendants from assigning or disposing of the assets or books and records of the business or from making or collecting any usurious loans pending the outcome of the litigation.

On the same day the receiver was appointed, the court on motion of defendants suspended the authority of the receiver until the final determination of the appeal. The restraining order was left in effect and defendants are operating the business under it now.

The appeal is from the order referred to above appointing a receiver and from no other order.

The petition after alleging the official capacity of the attorney general and county attorney of Shawnee county alleged it did not know the residence of defendants, Patricia Battaglia, Sophia Molitor, Joan Molitor and John Molitor, but believed that they could be served by a summons at their business address; that defendant Zimmerman resided in Topeka and all defendants did business as 'The Family Finance Company' at 111 East Fifth Street, Topeka, Kansas, for the purpose of loaning money; that defendant Zimmerman at all times mentioned in the petition was the manager in charge of the business and had in his custody all of the assets and books of account having to do with it; that defendants engaged in what was commonly known as the 'loan shark business,' the principal object of which was to collect and exact usurious rates of interest from laboring people, wage earners and others of small means who are forced by necessitous circumstances, such as sickness and other emergencies which placed them in critical situations, necessitating their obtaining funds to borrow small sums of money.

The petition then described the mode of doing business in detail and alleged there was a large number of loans made by the defendants outstanding; that they were illegal and usurious agreements and could not be adequately and completely adjusted by remedy at law; that unless a receiver should be appointed there would be a great multiplicity of vexatious and unfounded litigation, much of which would likely be brought in jurisdictions in which employees would be unable on account of their poverty to defend and secure their rights; that practically all of the borrowers were heads of families and not financially able to engage the services of an attorney and if sued on account of these loans in states other than Kansas would be denied their exemptions as heads of families and would be deprived of the defense available under the usury laws of the State of Kansas; that because of these facts, borrowers could not avail themselves of their legal defenses and remedies and that only a court of equity could give complete and adequate relief; that the plaintiff had reason to believe, and did believe, that there was imminent danger of defendants disposing of their property to individuals not subject to the jurisdiction of the court; that a receiver should be appointed with full power to take immediate charge of all property and effects of the defendants within the State of Kansas, insofar as connected with the lending of money, as described, and that the court should order the receiver to ascertain the exact situation in connection with each loan and should order such receiver to determine the amount of interest charged and paid on each loan and make a report of his findings to the court for further orders.

The petition prayed that a restraining order issue restraining the defendants from making loans at a rate of interest higher than that permitted by law; that the restraining order be made returnable forthwith and when returned that a temporary injunction issue enjoining the defendants from lending money at a rate of interest greater than permitted by law and that plaintiffs be granted as final relief a permanent injunction to the above effect. A further prayer was that the receiver be appointed immediately without notice to the defendants and that such receiver be ordered to take into his possession immediately all records, papers and property belonging to the defendants used in connection with the lending of money and that the receiver be ordered to determine the exact situation in respect to the loans and ascertain the amount of the principal sum loaned to each borrower, the rate of interest charged on the loan, the amount paid as interest and the amount paid on the principal and report his findings to the court for further orders and that defendants be restrained from assigning or disposing of the assets of the business, otherwise then ordered by the court, and for such other relief as might be fit and proper.

The petition was verified by the attorney general on information and belief only as follows:

'That he is the duly elected, qualified and acting Attorney General for the State of Kansas; that he has read the above and foregoing petition and knows that the allegations, statements and averments contained therein are true according to his knowledge, information and belief.'

On that date the court made an order appointing a receiver for the Family Finance Company and ordered him to take into his possession immediately all records, papers, moneys, bank accounts, assets and other property belonging to defendants used in connection with the lending of money and he was ordered to determine the exact situation in respect to each loan of the defendants and to ascertain the amount of the principal sum loaned to each borrower, the rate of interest and the amount paid on the principal of each loan and report his findings to the court for further orders.

On August 7, 1953, defendant Zimmerman filed a notice of appeal from the order appointing a receiver and filed an appeal bond in an amount and conditioned, as provided by law, to suspend the authority of the receiver until the final determination of the appeal. On the same date the district court made an order suspending the authority of such receiver.

The specifications of error are that the court erred in making an ex parte appointment of a receiver based upon the allegations of the petition, verified on information and belief and in making such an appointment based upon allegations of a petition which failed to clearly show the immediate necessity therefor.

This action along with several others of a similar nature were advanced on the docket of this court. Five of them were finally submitted on Friday, October the 9th.

It will be noted the appeal was from the order appointing a receiver and from no other order.

We have held a practice similar to the one described in the petition to be such as might be enjoined by the state, pursuant to G.S.1949, 60-1121. See State ex rel. v. McMahon, 128 Kan. 772, 280 P. 906, 66 A.L.R. 1072; also State ex rel. Beck v. Basham, 146 Kan. 181, 70 P.2d 24. In the latter case the lower court had conducted a hearing and found the state had failed to establish facts sufficient to warrant injunction and receivership. We reversed and ordered the trial court to grant the injunction and to appoint a receiver. It should be noted there had been a trial on the merits.

G.S.1949, 60-1201, provides in what cases a receiver may be appointed. The first five do not apply here but the sixth provides

'In all other cases where receivers have heretofore been appointed by the usages of the courts of equity.'

There is no statutory provision as to the showing necessary to warrant appointment of a receiver. G.S.1949, 60-1209, provides for an appeal from such an order without awaiting the final determination of the action upon giving proper bond.

The state relies in the main on the proviso in G.S.1949, 60-1121. That provides for the granting of an injunction to...