State ex rel. Larry C. Iverson, Inc. v. District Court of Ninth Judicial Dist. In and For Pondera County

• Decision Date: 25 October 1965
• Docket Number: No. 11013,11013
• Citation: 406 P.2d 828,146 Mont. 362
• Parties: STATE of Montana on the relation of LARRY C. IVERSON, INC., a corporation, John C. Treadaway and J. Milton Krull, Relators, v. The DISTRICT COURT OF the NINTH JUDICIAL DISTRICT of the State of Montana, IN AND FOR the COUNTY OF PONDERA, and the Honorable R. D. McPhillips, Judge thereof, Respondents.
• Court: Montana Supreme Court

Page 828

406 P.2d 828

146 Mont. 362

STATE of Montana on the relation of LARRY C. IVERSON, INC.,

a corporation, John C. Treadaway and J. Milton

Krull, Relators, v. The DISTRICT COURT OF the NINTH JUDICIAL DISTRICT of the

State of Montana, IN AND FOR the COUNTY OF

PONDERA, and the Honorable R. D.

McPhillips, Judge thereof,

Respondents.

No. 11013.

Supreme Court of Montana.

Submitted Sept. 8, 1965.

Decided Oct. 25, 1965.

M. Dean Jellison (argued), Kalispell, Michael A. Bosco, Jr. (argued), Phoenix, Ariz., Donald A. Garrity (argued), Helena, for appellant.

Swanberg, Koby & Strope, Great Falls, Randall Swanberg (argued), Great Falls, Philip Strope (argued), Great Falls, for respondent.

LaVern V. Harris, Helena, argued amicus curiae.

CASTLES, Justice.

This is an original proceeding. On September 15, 1965, we issued an Order setting aside an Order appointing a receiver and directing an immediate accounting with this opinion to follow.

Relator, Larry C. Iverson, Inc., is a Montana corporation engaged in farming in Pondera County. Relators, Treadaway and Krull, are associates in a management firm employed by Relator corporation and the shareholders thereof, to manage their affairs. This proceeding is for a Writ of Prohibition or other appropriate writ against the District Court and the Judge thereof to vacate and annul an order and judgment of August 23, 1965, and to stay all proceedings in that action.

On August 5, 1965, Relators were served with a summons, complaint and order to show cause in the case of Farmers State Bank of Conrad v. Carl O. Iverson, et al. In response thereto, Relators appeared before the Ninth Judicial District Court of Pondera County on August 16th and objected to the jurisdiction of that court to appoint a receiver of the property of Larry C. Iverson, Inc.

Notwithstanding the objections, the Court did appoint a receiver of the property of Larry C. Iverson, Inc., on August 23, 1965, after making findings of fact and conclusions of law. The findings and conclusions are as follows:

'That Larry C. Iverson, Inc., is a Montana Corporation with approximately eight stockholders and 2,523 shares of stock outstanding; that plaintiff is a pledge holder of certain shares of stock, legal title to which said shares remains in the stockholders thereof; that Larry C. Iverson, Inc., has been sued in Pondera County Civil Actions 7761 and 7762, wherein, among other things, plaintiffs therein have asked to set aside certain conveyances of real property now standing of record in the name of Larry C. Iverson, Inc.; that Larry C. Iverson, Inc., in Pondera County Civil Action No. 7711 has had property, standing in the name of said Larry C. Iverson, Inc., attached; that said above referred civil actions pending in Pondera County, Montana, are for substantial amounts of money; that Larry C. Iverson, Inc., mortgaged the 1965 grain crop of said corporation to J. Milton Krull and John C. Treadaway in the amount of $125,000.00; that said mortgage is dated approximately two months after the creation of the said corporation; and that the stock above referred and pledged to the plaintiff herein may be rendered virtually valueless in the event that all conveyances of land and other assets heretofore conveyed to Larry C. Iverson, Inc., be set aside, and more particularly so in the event the 1965 grain crop now ready to harvest on lands owned by Larry C. Iverson, Inc., be sold or dissipated.'

The conclusions of law were as follows: 'That plaintiff is entitled to have a receiver appointed for Larry C. Iverson, Inc., not so the receiver may pay the indebtednesses alleged in plaintiff's complaint, but so that the value and integrity of the stock pledged as security to the plaintiff may be protected; that the receiver should put up a bond to be approved by the Court in the amount of $190,000.00; and that the receiver shall have the all necessary powers to carry on the business generally engaged in by Larry C. Iverson, Inc.'

The Petition for a Writ of Prohibition alleged that the appointment of a receiver was completely unnecessary since the value of the Relator Corporation was in excess of $750,000, that the stock certificates pledged by the individual defendants as security for the debt owing by the individuals is more than adequate to satisfy any judgment. Also it was alleged that in an action for debt, such as this, there is no authority for appointment of a receiver, also, certain facts concerned with other lawsuits, condition of crop and harvest and other matters were alleged.

We issued an alternative writ and order to show cause, returnable September 8, 1965. On the return day the District Judge appeared by a Motion to Quash and a Return and Answer. Additionally, a transcript of proceedings had in the District Court and the original court files were introduced.

The Motion to Quash is on the grounds that an adequate remedy at law exists and therefore an extraordinary writ does not lie. The adequate remedy asserted is that of appeal under R.C.M.1947, Sec. 93-8003, and 93-8004. Additionally, it is asserted that Relators Krull and Treadaway ae holders of a note and chattel (crop) mortgage, such note not being due until November 30, 1965, and that such note and mortgage are under attack in the lower court action. Thus, reasons the respondent court, if premature payment of the note and mortgage in the amount of $125,000 were made to Krull and Treadaway, the validity of such obligation of the Corporation would be rendered moot to the injustice of the plaintiff Bank.

As remarked before, a transcript of a hearing had on the appointment of a receiver is before us. From it, and oral presentation at argument, the following background summary is made.

The Relator, Larry C. Iverson, Inc., is a farming Corporation held by eight stockholders. Of the eight stockholders, five, representing 1,663 shares of stock pledged their stock to the Farmers State Bank of Conrad to secure personal loans. This pledged stock is a majority of the stock. The pledges were sought and obtained by the Bank in late 1963 and early 1964 as security when it became uneasy over several loans represented by demand notes.

The five stockholders, who had pledged their stock, had become in varying degrees, financially involved in Colorado and Arizona and became defendants in a number of lawsuits. Lawsuits were filed in Montana against the stockholders individually and against the Larry C. Iverson, Inc. The nature of the lawsuits are not completely clear; but they sought to 'pierce the corporate veil' in an effort to get at the farmland and crop assets of Larry C. Iverson, Inc. This year is a 'bumper crop' year and a valuable $190,000 crop is in the harvest.

The Bank, alleging personal unpaid debts, sued for their collection, suing to foreclose the pledges on the stock and praying that the stock be sold at public auction to satisfy the indebtedness represented by the notes and pledges, of individual indebtedness and not that of the Corporation.

Then, it was alleged in the suit that since the pledges represent a majority of the Company ownership, and since harvest time is imminent, and since a chattel mortgage on the crop, due November 13, 1965, for $125,000 is present although invalid as to the Bank, that this combination of factors materially affects the security of the Bank. Thus, it is alleged that a receiver is necessary to supervise the harvest and conserve the assets.

Nowhere is it alleged that Larry C. Iverson, Inc., or any of the defendants were or are insolvent. The entire sweep of the plea for receivership is to maintain the Bank's security, even though it already has the pledged stock and is foreclosing, and even though a value of $750,000 worth of land and a $190,000 crop is shown to exist.

An Order to Show Cause why a receiver should not be appointed was issued. It was directed to the five stockholders previously mentioned and to Relators, Larry C. Iverson, Inc., and Relators Krull and Treadaway. On the return, various appearances, special and otherwise, contesting the jurisdiction of the Court were made, but we deem this matter unimportant to our ruling herein.

At any rate, objections were made and overruled. A hearing was had at which it developed as previously described in part. The District Court appointed a receiver with a bond of $190,000 required.

On the hearing aforementioned, the Corporation's status and needs were shown. The individual stockholders who had pledged their stock to the Bank are defending numerous lawsuits, both in Montana and in Colorado and Arizona. The Corporation likewise is defending. Krull and Treadaway were hired as business managers and are actively engaged in managing Larry C. Iverson, Inc., as well as the affairs of individual stockholders. It was shown that they had individually advanced at least their own credit for the benefit of the Corporation. It is true that they hold the aforementioned chateel mortgage on the current crop which is contested as to its validity. But their good faith appears from a meeting with the Bank directors on July 5, 1965, when the President of the Bank testified as follows:

'Q. Did you have, subsequent to July 5, 1965, any conversation with any of the persons involved in this suit relative to payment of those notes? A. Yes, sir.

'Q. Do you recall the approximate date? A. July 5th, 1965.

'Q. And on that date who did you talk to? A. I talked to J. Milton Krull and John Treadaway.

'Q. Was Larry Iverson also present? A. Larry was there for part of the conversation.

'Q. Was Mr. Swanberg also present? A. Yes, Mr. Swanberg was present.

'Q. Anybody else present? A. Yes, the other directors of our Bank.

'Q. How many other directors are there? A. Two.

'Q. Is it correct that during the course of your conversation at that time a substantial agreement--verbal agreement--was reached for a method of payment of these obligations? A. There was a verbal agreement discussed,...