Tcherepnin v. Kirby

• Decision Date: 04 August 1969
• Docket Number: 17234 and 17235.,No. 17171,17171
• Citation: 416 F.2d 594
• Parties: Alexander TCHEREPNIN et al., Plaintiffs-Appellees, v. Dennis KIRBY et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

416 F.2d 594 (1969)

Alexander TCHEREPNIN et al., Plaintiffs-Appellees, v. Dennis KIRBY et al., Defendants-Appellants.

Nos. 17171, 17234 and 17235.

United States Court of Appeals Seventh Circuit.

August 4, 1969.

William J. Scott, Atty. Gen. of the State of Illinois, Chicago, Ill., for appellants Joseph E. Knight and Justin Hulman.

Stuart D. Perlman, William G. Clark, Seymour I. Burton, Albert E. Jenner, Jr., Charles J. O'Laughlin, Joan M. Hall, Jenner & Block, Maurice J. McCarthy, Joseph O. Kostner, Chicago, Ill., for defendants-appellants City Savings Assn., Dennis Kirby, Steven J. Kadlicek and Richard Ray.

Leonard B. Ettelson, William J. Friedman, Arnold I. Shure, A. Bradley Eben, Robert A. Sprecher, Solomon Jesmer, Chicago, Ill., for plaintiffs-appellees.

Before KILEY, SWYGERT and CUMMINGS, Circuit Judges.

CUMMINGS, Circuit Judge.

This appeal is from an order of the district court appointing federal receivers to take over the affairs of City Savings Association and enjoining three liquidators purporting to act pursuant to the Illinois Savings and Loan Act from acting further. In support of their respective positions the parties, whose interests appear below, have presented a great many arguments directed to the principles of federalism, the public policy of Illinois and the interpretation of various provisions of Illinois law. All parties acknowledge the power of the district court, in the exercise of its discretion, to appoint federal receivers in a proper case. We have considered all of the issues raised but find it is only necessary to decide whether on the facts of this case the district court abused its discretion in appointing federal receivers and enjoining the voluntary state liquidation procedure. We conclude that the district court's order is supported by the record.

City Savings Association is a savings and loan institution chartered by the State of Illinois. Some of its checkered history is described in the majority and dissenting opinions in Mensik v. Smith, 18 Ill.2d 572, 166 N.E.2d 265 (1960). Only the facts essential to the disposition of the present controversy will be stated herein. For the second time, custody of City Savings Association was taken by the State of Illinois on June 26, 1964. Four days later, the Board of Directors of City Savings approved a plan of voluntary liquidation and called a special meeting of shareholders. On July 28, 1964, this plan was approved by the shareholders, and on September 20, 1964, the State released custody of City Savings to three liquidators elected by the shareholders.

The present class suit was instituted four days before the July 28, 1964, shareholders' meeting and claimed that plaintiffs purchasing withdrawable capital shares in City Savings after July 24, 1959, had been induced to do so by materially false and misleading statements in violation of the federal securities laws. Eventually included as defendants were officers of City Savings, officials of the State of Illinois charged with overseeing the affairs of City Savings, and the liquidators elected by the shareholders. The plaintiffs prayed for rescission and for placement in the status of judgment creditors of the insolvent City Savings. Another group of shareholders seeking to protect their eventual share in the distribution of City Savings' assets intervened in the suit.

Unhappy with the course of the liquidation, plaintiffs moved for appointment of a federal receiver in 1966. Largely because of then existing doubts as to federal jurisdiction under the securities laws and because there had as yet been no hearing to develop plaintiffs' allegations of mismanagement and fraud in the course of the liquidation, the district court refused to appoint a receiver at that time. Tcherepnin v. Franz, 277 F.Supp. 472 (N.D.Ill.1966). However, those doubts were authoritatively resolved in favor of federal jurisdiction by the Supreme Court in Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564, and plaintiffs renewed their motion for the appointment of a federal receiver. The district court appointed an Examiner and Assessor and a Special Master to look into the current status of the liquidation and to report to the court on the need for appointment of federal receivers. Thereafter a hearing was held before the district court during which the three liquidators and others testified. Based on the evidence adduced at that hearing and the two reports of the Examiner and Assessor, the district court entered the order which is the subject of this appeal.

In that order the court appointed two well-known members of the Chicago Bar as receivers and directed the three liquidators to cease acting after turning over to the receivers all City Savings books, records, titles, properties and assets. The federal receivers have been acting since September 19, 1968, when this Court, after considering the views of the parties and the Securities and Exchange Commission, denied a stay order sought by the liquidators. The liquidators have presumably relinquished all custody and ceased to act pursuant to the district court's order.

Plaintiff shareholders, the intervening shareholders and the Securities and Exchange Commission all support the appointment of the federal receivers. Before this Court the State of Illinois has also urged affirmance for the reason that "a reconveyance of the assets of the City Savings Association to the State...