Case Title: Martin Oil Co., Inc. v. Clokey

Citation: 277 So. 2d 343

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1973-05-03T00:00:00Z

Document:
277 So. 2d 343 (1973)
MARTIN OIL CO., INC., et al.
v.
David L. CLOKEY et al.
Div. SC 278.

Supreme Court of Alabama.
May 3, 1973.
Rehearing Denied May 24, 1973.
Lusk, Swann, Burns & Stivender, Gadsden, Wingo, Bibb, Foster, Conwell & Strickland, Birmingham, for appellants.
Inzer, Suttle, Inzer & Pruett, Gadsden, for appellee, David L. Clokey.
COLEMAN, Justice.
Appellants appeal from an order appointing a receiver for Martin Oil Co., Inc., an Alabama corporation. Title 7, § 758, Code 1940.
The appellants are the corporation, sometimes referred to as the company, and James D. Martin who is a stockholder and president of the corporation. He is herein referred to as Martin.
The appellees are David L. Clokey and Charles H. Fennelle. Both are stockholders and officers of the corporation. On January 23, 1973, they filed in the circuit court, in equity, an instrument entitled: "APPLICATION FOR THE APPOINTMENT OF LIQUIDATING RECEIVER."
Appellees, sometimes herein referred to as applicants, allege in the application that the principal place of business of the corporation is in Gadsden in Etowah County, Alabama. Appellants assert in brief that Martin resides in Gadsden. This assertion is not contradicted.
On January 29, 1973, the circuit court entered the order appointing a receiver pendente lite of all the property, assets, and estate of the corporation with authority to take immediate possession of said property including all books, papers, evidence of indebtedness, and all other property of every kind whatsoever belonging to *344 the corporation. It is ordered that the receiver shall continue to carry on the business of the corporation pending further orders of the court.
Neither the corporation nor Martin received notice of the application until January 30, 1973, on which day the sheriff of Etowah County served a copy thereof on Martin by handing it to Martin. The record contains nothing to explain why no service was had during the period between the filing on January 23 and the service on January 30. The first prayer in the application is that the court appoint a receiver pendente lite to take custody of the assets of the corporation and manage and operate its business and safeguard its assets until hearing can be had.
The averments of the application are that the principal place of business of the corporation is in Gadsden; that it is engaged in distributing petroleum products; that annually the corporation sells approximately 7,000,000 gallons of such products and about $40,000.00 in tires, batteries, and accessories, and owns "considerable real property" in Etowah and St. Clair Counties; that the directors of the corporation are Clokey, Fennelle, and Martin; that Martin is president, Clokey is vice-president, and Fennelle is secretary-treasurer of the corporation; that Clokey and Fennelle sell the products of the corporation and manage the "day-to-day operations exclusive of its financial affairs"; that from the time the corporation began business, Martin has directed its financial affairs; that Clokey owns one-fourth of the capital stock of the corporation, Fennelle one-fourth, and Martin owns the remaining one-half with possible exception of one share which applicants are informed and believe might have been issued to Thomas N. Martin; that when Clokey and Fennelle became shareholders they relied on Martin's assurance that each of them would receive one-fourth of the shares of stock outstanding; that each was deceived in that Martin issued to Clokey treasury stock; and that by issuing treasury stock to Clokey, Martin increased his position of dominance in the company.
In Section 5 of the application, applicants aver that Martin has used his dominant position as chief financial officer to violate the salary agreement between the company and each officer; that Clokey and Fennelle, according to the agreement, are to receive, as salary, a sum equal to 13/15 of the sum paid to Martin as salary; that Martin directed, in August of 1971, that no further salary should be paid to any officer of the corporation, and, since that time, with the exception of salary for December, 1972, and January, 1973, collected by applicants on their own motion, no salary has been paid to either of them; that, however, during the time from August, 1971, Martin continued to withdraw from the company and divert to his own purposes approximately $8,000.00 per month.
Applicants aver that Martin's refusal to attend directors' meetings and to abide decisions made by the directors has created a deadlock in the management of company affairs and the business of the company is threatened with immediate and irreparable injury; that Martin has used his position to misappropriate assets of the company to his own use and the use of members of his immediate family; that company records disclose that during the fifteen months including and next preceding November, 1972, Martin fraudulently used for his own purposes approximately $115,000.00 of the company's funds as follows: $12,300.00 to pay debt on home in Maryland, title to which is in Martin, his family, or Martin Realty Co., a corporation, herein called Martin Realty, in which Martin has a substantial interest; $28,000.00 to purchase a truck stop owned by Martin or his family or Martin Realty; $31,000.00 spent to purchase or maintain filling stations owned by Martin, his family, or Martin Realty; $38,000.00 to purchase a restaurant similarly owned by Martin or his family; $11,200.00 to purchase a farm in Calhoun County, Alabama, also similarly *345 owned by Martin or his family; $1,200.00 to pay Martin's pledge to a church; and $400.00 on Martin's campaign for United States Senator.
Applicants aver that Martin has utilized one company employee full time as a worker on Martin's farm and has used other company employees to maintain his home, his personally owned filling stations and his farm, and has made an unauthorized loan of company funds to a personal friend; that for the past eight or nine years Martin has followed a "`long standing and consistent program of misappropriation of the Company's assets'" and has brought the company "`near to bankruptcy'" and made it "`operationally insolvent'"; that the company is indebted to "AMOCO" in excess of $100,000.00, presently due and payable, and does not have on hand funds sufficient to pay that debt in the immediate future; that company has had to operate on a restricted cash flow and cannot take advantage of discounts on purchases from its principal supplier equivalent to approximately $1,000.00 per month.
Applicants aver that:
Applicants further aver that because of the history of mismanagement and fraud Martin has perpetrated upon applicants, they "can no longer agree actively to be engaged in business with him"; that appointment of a receiver is necessary to collect the assets of the company, to operate its business pending liquidation, to recover from Martin, his family, or Martin Realty Company assets he has fraudulently misappropriated, and to supervise an audit of the company's books to account for the misappropriated assets.
In addition to the first prayer for appointment of receiver for corporation as mentioned above, applicants pray for temporary injunction to enjoin Martin from interfering with the receiver or disposing of his interest in the stock of the corporation, any service station in Etowah or St. Clair County, his Calhoun County farm, his Maryland residence, the Scruggs' Truck Stop, the Riverboat Restaurant, and his interest in Martin Realty.
Applicants pray also for temporary injunction enjoining Martin's wife from disposing of any interest she has in the property mentioned in the next preceding paragraph.
Applicants pray for injunction enjoining State National Bank of Alabama and American National Bank of Gadsden from permitting anyone, except the receiver, to withdraw funds deposited to the account of the company or to use the company's credit. Applicants pray also for injunction enjoining Martin Realty from disposing of its assets, including but not limited to cash and funds on deposit.
The injunctions prayed for were issued, but issuance of the injunctions is not assigned as error.
The order appointing receiver is assigned as error. Seven reasons are asserted and argued by respondents as grounds to support this assignment. Among these are those next considered.
Respondents argue that appointment of the receiver was unauthorized because no suit was pending when the appointment was made. This court has said:
In Crowder v. Moone, supra, the appeal was from an order appointing a receiver one day before the bill was filed. In reversing, among other things, this court said:
On appeal from an order appointing a receiver, in Harwell v. Potts, supra, this court reversed and said:
In Howell & Howell v. Harris-Cortner & Co., supra, this court revoked the appointment of a receiver, saying:
The receiver was appointed in the instant proceeding without notice to respondents. Respondents argue that the order appointing the receiver is improper because the rule is that the appointment of a receiver without notice is improper unless the bill or application on which the order is founded sets forth facts showing an imperious and stringent necessity for the appointment without notice, and here no such necessity is shown.
In Crowder v. Moone, supra, this court said:
In Moritz & Weil v. Miller, Schram & Co., 87 Ala. 331, 6 So. 269, appeal was from an order appointing a receiver under a bill seeking to set aside a transfer by Moritz & Weil of their books, notes, accounts, *347 and other choses in action to other defendants on the alleged ground that the transfer was made on a fictitious consideration with intent to defraud complainants and other creditors. This court said:
In Thompson v. Tower Manufacturing Co., 87 Ala. 733, 6 So. 928, the case is stated as follows:
In reversing the order appointing receiver this court said:
In Hayes v. Jasper Land Co., 147 Ala. 340, 41 So. 909, the bill was by a minority stockholder and in which the corporation and its president were made respondents. The purpose of the bill was to require an accounting by the respondent president for alleged transactions by him as such officer. The bill prayed for a receiver and was accompanied by petition for appointment of a receiver which the chancellor refused and from the order refusing to appoint the appeal was prosecuted. The bill averred that of 4990 shares outstanding, the respondent president owned or controlled over 4700 shares; "... that he has abused his control of said corporation and his trust as vice president and general manager, and later as president; that he has loaned to himself, and to companies owned and controlled by him, large sums of money belonging to the land company; that he has called stockholders' meetings without notice, and has presented and had allowed by the stockholders and directors unfounded claims and demands against the land company; that on September 13, 1905, he procured to be declared a dividend of $29.50 per share of the stock of the land company, which was paid out of the capital assets of the company; that he has taken and is now taking from the treasury excessive sums in the form of salaries and expenses; that he is in the absolute control of the said land company, and of its money, and assets; and that, unless the same is taken from him and protected by a court of equity, he will continue to appropriate the same to his own use, under various guises and devices, which would make it difficult, if not impossible, to trace and recover the same. It is not averred in the bill that either Musgrove or the respondent corporation are insolvent. The bill further shows that the defendant corporation has a board of directors and officers, that have the management and control of its business and affairs, and it is not denied that these officers are administering the business purposes of the corporation, though it is charged that the board of directors are under the domination and control of the said Musgrove, and that through the mismanagement and fraud the corporation will ultimately be destroyed...." (147 Ala. at 343, 344, 41 So. at 910)
*349 In affirming the refusal to appoint a receiver for the corporation, this court, among other things, said:
In a suit for appointment of receiver and accounting this court reversed a decree appointing a receiver for a corporation. The court said:
In Van Antwerp Realty Corp. v. Cooke, 230 Ala. 535, 162 So. 97, this court affirmed a decree overruling demurrer to a bill. The court held that while the bill did not show a right to have a receiver appointed, the bill did show a right to other relief. This court considered the circumstances in which a receiver will be appointed at the suit of a minority stockholder when the corporation is solvent and a going concern, but had this to say:
The following footnote is found in Fletcher, Cyclopedia of The Law of Private Corporations, Permanent Edition, Vol. 16, pages 67 and 68, to wit:
Appellants argue also that a receiver will not be appointed for a corporation when there is another adequate remedy; and that an adequate remedy by accounting and injunction precludes the appointment of a receiver, citing Fletcher, Vol. 16, supra, pages 203, 206, 209; Hayes v. Jasper Land Co., supra; Birmingham Disinfectant Co. v. Smith, supra; and Alabama Coal & Coke Company v. Shackelford, supra.
In reply to appellants' argument, the applicants say that the appointment of a receiver for a corporation is authorized by Act No. 414, approved November 13, 1959, 1959 Acts, page 1055, Sections 78 and 79; which appear in the pocket parts of the 1958 Recompilation of the Code as Title 10, § 21(78) and § 21(79).
The cited statute, §§ 78 and 79, does contain certain provision for dissolution and liquidation of corporations and for appointment of receivers, but we are not advised as to provisions in the statute which authorize such appointment without notice when no suit is pending, or when the imperious and stringent necessity for appointment without notice is not shown, or when it is not shown that there is no other adequate remedy. Here, no bill of complaint has been filed. It is not alleged that either the corporation or Martin is insolvent. It is not shown that injunction or accounting will not afford an adequate remedy.
The applicants cite the cases next discussed. In Cowin v. Salmon, 248 Ala. 580, 28 So. 2d 633, this court affirmed a decree dissolving two corporations. Apparently a receiver had been appointed. The appeal was the second appeal in litigation between the same parties relating to the same subject matter. See Cowin v. Salmon, 244 Ala. 285, 13 So. 2d 190. The decree appears to have been a final decree after hearing. No question is presented with respect to appointment of a receiver without notice.
In Jasper Land Co. v. Wallis & Carley, 123 Ala. 652, 26 So. 659, this court affirmed a decree appointing a receiver. The statement of the case recites that on submission of the cause on the petition for appointment of receiver, motion to dismiss the bill, demurrers, answers of the defendants, "and upon the testimony," the court rendered a decree granting the petition and ordered the appointment of receiver. There the respondents had filed an answer and there was no lack of notice.
In Bateh v. Brown, 289 Ala. 695, 271 So. 2d 830, the appeal was from a decree in a suit which sought dissolution and liquidation of a corporation, the appointment of a receiver, and distribution of the assets. A bill of complaint was filed May 6, 1971. Decrees pro confesso were entered against respondents on June 10, 1971. On June 15, 1971, respondents filed "a purported answer"; on June 21, 1971, respondents filed petition to set aside the decrees pro confesso; and on August 31, 1971, the court entered a final decree. Clearly the respondents had ample notice.
In American Armed Services Underwriters v. Atlas Insurance Company, 268 Ala. 637, 108 So. 2d 687, this court affirmed an order issued ex parte appointing a receiver for a corporation. There are at least two material differences between Armed Services and the instant case. The order in *351 Armed Services appointing the receiver was issued upon a bill filed by complainant and three supporting affidavits. In the instant case no bill had been filed. The respondents to the bill in Armed Services were four individuals, namely: Cooney, Kenney, Wallace, and Cage, and a Nevada corporation, and a bank. In the statement of the case the following appears:
In the instant case, there is no allegation that either of the appellants is insolvent.
In Ashurst v. Lehman, Durr & Co., 86 Ala. 370, 5 So. 731, a bill was filed December 15, 1888, against appellants and sought foreclosure of a mortgage executed by appellants conveying a tract of land and the crops to be grown on the land in the year 1888. The bill prayed the appointment of a receiver to take possession of the crops. A receiver was appointed by the register on the day the bill was filed. An appeal to the chancellor was taken from the order of the register, and the chancellor affirmed. The chancellor's decree was assigned as error on appeal to this court. This court affirmed saying:
In the case at bar, for the reasons that no bill had been filed, that it had not been shown that appellants were insolvent, and *352 for aught that appears injunction and accounting would furnish an adequate remedy for the applicants, the necessity for appointment of a receiver without notice does not appear and the order appointing the receiver without notice is erroneous and is revoked.
As to what rights the parties may be shown to have in further proceedings we express no opinion.
Reversed and remanded.
BLOODWORTH, McCALL, FAULKNER and JONES, JJ., concur.