Title: View-All, Inc. v. United Parcel Service

State: alabama

Issuer: Alabama Supreme Court

Document:

435 So. 2d 1198 (1983)
VIEW-ALL, INCORPORATED, an Alabama Corporation, George H. Deyo, Sam Grasso, John Poczabut and Leonard Sansone
v.
UNITED PARCEL SERVICE, et al.
81-390.

Supreme Court of Alabama.
May 6, 1983.
Rehearing Denied July 8, 1983.
H. Darden Williams of Williams, Williams & Norton, and Charles S. Doster of Merrill, Porch, Doster & Dillon, Anniston, for appellants.
James N. Brown, III, Birmingham, for appellees.
PER CURIAM.
Plaintiff/Appellee United Parcel Service initiated this cause against defendant/appellant View-All, Inc., premised upon open account, and for work and labor done. The complaint was later amended to include as individual defendants, George H. Deyo, Sam Grasso, John Poczabut, and Leonard Sansone, in their capacity as directors of View-All. As ostensible class representative, *1199 United Parcel Service sought certification of this cause as a class action, alleging conversion, breach of fiduciary duty, and wrongful preference by defendants in their disbursement of monies to creditors of View-All, subsequent to the sale of its assets to Cerro Corporation.
The trial court granted the prayer for class action designation; added Magnavox CATV System, Inc., as a party plaintiff;[1] and granted dismissal against certain remaining plaintiffs;[2] and after an extensive hearing, entered the following order:
View-All appeals from that judgment. We reverse.
View-All was an Alabama corporation with its principal place of business in Anniston, Alabama. The company manufactured components for sale to the cablevision industry. The business was never successful and was insolvent almost from the date of its inception.
The individual defendants herein were, at all times material to these proceedings, directors and controlling shareholders of View-All, holding approximately 80% of the company's outstanding stock. In addition to their initial capitalization of View-All, the defendants/directors, from time to time since the date of its origination, personally advanced monies to View-All for the purpose of keeping it solvent. Debentures and personal loans of the defendants/directors totalling $312,700 were capitalized during 1973 by turning them into stock to reduce the debt of the corporation.[3]
The insolvency of View-All was such that it sought a sale of its assets to Cerro Corporation. Thereafter, a sales contract was entered into on or about March 8, 1974. Following bulk sales notice to all creditors of View-All, the sale to Cerro was consummated for approximately $449,500.[4]
The plaintiffs herein are parties who received no monies in either the March or September 1974 payments. View-All was later dissolved.
Certain nonresident defendants were served by certified mail. The crux of the supporting affidavit was to the effect that the nonresident defendants "were officers, directors, stockholders or otherwise in control of" View-All, so as to support in personam jurisdiction in the courts of this state.
Defendants' challenge to the sufficiency of such service of process, and to the propriety of jurisdiction, is bottomed upon the allegation that the individual defendants' mere presence on the board of directors of an Alabama corporation is insufficient to meet the "minimum contacts" mandate of ARCP 4.2(a)(2)(I).
Professor Moore summarizes the current constitutional requirements in this area as follows:
2 J. Moore, Federal Practice, Para. 4.25, pp. 4-258 through 4-267 (2d Ed.1982).
Under the "minimum contacts" standard of in personam jurisdiction, maintenance of the suit must not offend "traditional notions of fair play and substantial justice." Williams v. Barrington Ford, 402 So. 2d 903 (Ala.1981); International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945). Admittedly, the simplicity of such language rarely obtains in its application. We think, however, that Defendants here were engaged in a substantial and continuing business within this state, and that plaintiffs' claim arose out of this course of action. Consequently, we *1202 hold there did exist the requisite minimum contacts to require each individual defendant to come within the boundaries of this state and answer plaintiffs' allegations. International Shoe Co. v. Washington, supra. See McGee v. International Life Insurance Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957).
Appellees (plaintiffs below) contend in their complaint that appellants, by giving themselves preferences over other creditors from the proceeds of the sale of the assets of View-All Products, Inc., converted funds which belonged to View-All, and that this amounted to fraud as regards the various appellees. The trial court agreed, finding that such a preference constituted a violation of the directors' fiduciary duty owing to the creditors as a class. We disagree.
There can be no doubt that a cause of action for fraud will lie by a creditor against the directors of a corporation if such action is supported by the evidence. E.g., O'Connor Mining & Manufacturing Co. v. Coosa Furnace Co., 95 Ala. 614, 10 So. 290 (1891).
The mere fact of the giving of preferences to themselves by the directors does not, however, in and of itself, constitute fraudulent conduct. At common law, the settled rule in this state allowed an insolvent corporation to make a transfer of its assets to one or more of its directors in payment of bona fide debts due from the corporation, thereby preferring such directors to other creditors in payment of its corporate debts. Corey v. Wadsworth, 118 Ala. 488, 25 So. 503 (1897). The trial court never found the debts to the directors not to be bona fide, and, on the contrary, referred to them in its order several times as personal loans.
Any relief available to the plaintiff class/appellees exists in Ala.Code 1975, § 10-2-201, by which the legislature adopted the "trust fund doctrine," which had been repudiated by this Court at common law.
Section 10-2-201 provides:
Under the trust fund doctrine, the directors and officers of an insolvent corporation cannot give themselves a preference in the payment of corporate debts over other general creditors; however, as a creditor of the corporation, he is not subordinate to other creditors of the same class merely by virtue of being a director or stockholder. First National Bank of Birmingham v. Huddleston, 239 Ala. 528, 195 So. 755 (1940).
In other words, the relief available to the plaintiff class/appellees is not a dollar-for-dollar recovery of the debts owed them by the corporation from the directors who gave themselves preferences. The relief in equity is a marshaling of all the assets of the insolvent corporation for a pro rata administration to all creditors, including the director/creditors. The relief is an equitable one and does not depend on the fraudulent conduct or lack of good faith on the part of the directors.
To invoke the equity jurisdiction of the court under § 10-2-201, a complaint must allege the insolvency of the corporation and ask for the relief of marshaling and administering the assets. Cassells Mills v. First National Bank of Gadsden, 187 Ala. 325, 65 So. 820 (1914). This is no less true under our current Alabama Rules of Civil Procedure.
The complaint in the instant case falls short in that regard. Whether such relief is still timely is a determination to be made by the trial court on remand.
We emphasize that our determination of the instant case is made pursuant to Ala. Code 1975, § 10-2-201. This section was *1203 repealed and no comparable section was enacted by the new Alabama Business Corporation Act, Ala. Acts 80-633. We make no determination here how a similar question would be decided under the current statute.
The instant case is, therefore, due to be reversed and remanded in accordance with the foregoing instructions.
REVERSED AND REMANDED.
All the Justices concur.
[1]  Defendants originally omitted Magnavox CATV System, Inc., from a list furnished by the trial court of plaintiffs answering defendants' interrogatories.
[2]  Interrogatories propounded by defendants were answered by approximately 20 of the original class action plaintiffs. On motion by defendant View-All, the action was dismissed as to all plaintiffs not answering the interrogatories.
[3]  An information statement given the stockholders of View-All shows that loans totalling $225,000 by the defendants/directors were contributed to the company in December 1971 to retire certain debts and increase working capital. An additional $20,000 was loaned in 1972 to increase working capital, and $12,000 was paid individually by the directors in settlement of a lawsuit against the company.
[4]  Of this amount, $252,404.80 was initially paid by Cerro to View-All. The difference between the purchase price ($449,500) and the amount actually received by View-All ($252,404.80) was apparently paid directly by Cerro to secured creditors.