Opinion ID: 2027736
Heading Depth: 1
Heading Rank: 2

Heading: the trial court was without authority to appoint a litigation receiver for the purpose of deciding a corporation's claim for damages against directors determined to have breached their fiduciary duty as a matter of law.

Text: Under Article VI, § 20 of the South Dakota Constitution, [a]ll courts shall be open, and every man for an injury done him in his property, person or reputation, shall have remedy by due course of law, and right and justice, administered without denial or delay. This constitutional provision provides that courts have the authority to adjudicate and that individuals have the right to remedy by due course of law in South Dakota courts. Nowhere under the South Dakota Constitution nor the statutes of the State of South Dakota are receivers granted judicial authority to act in place of a court. Under South Dakota law, there are a number of statutory provisions authorizing the appointment of a receiver. See SDCL 21-21-1 to 21-21-5 and SDCL 47-26-29. A statute conferring the power to appoint a receiver must be strictly construed[.] 19 C.J.S. Corporations, § 756. None of these sections provide an arguable basis, under the facts of this case, for a litigation receiver. [T]he court cannot confer upon the receiver other or greater authority than is conferred by these Code provisions. Hogg's Receiver v. Hogg, et. al., 265 Ky. 656, 97 S.W.2d 582, 583 (1936). In fact, the whole concept of the receivership is contrary to the use of that office in this case. Receiverships are intended to protect property, funds, or proceeds ... where it is shown that the property or fund is in danger of being lost, removed, or materially injured[.] SDCL 21-21-1; see 65 Am. Jur.2d, Receivers, § 3. Even in cases where a receiver is empowered to settle creditors' claims, he must present[ ] all factual matters and all legal questions ... to the court with ample opportunity for the claimants and objectors to argue the issues [before the court]. In Re E.C. Warner Co., 232 Minn. 207, 45 N.W.2d 388, 394 (1950) (emphasis added). All issues must be thoroughly litigated and there must be an adjudication on the merits by the trial court. Id. SDCL chapter 21-21 does not grant the power to appoint a receiver to usurp the right of parties to a trial on the merits. 65 Am.Jur.2d, Receivers, § 3 provides in part: The appointment of a receiver certainly is not made for the purpose of destroying the rights of persons, but rather, that their rights may be made more secure. The trial court mistakenly relied upon SDCL 21-21-3 as authority to appoint a litigation receiver. It merely provides: A receiver may be appointed by the court in which an action is pending, or by the judge thereof, in the cases where a corporation has been dissolved, or is insolvent, or is in imminent danger of insolvency, or has forfeited its corporate rights; or is unable to exercise its corporate functions because of continued dissen[s]ion between or neglect by its stockholders, directors and officers. SDCL 21-21-3 governs situations where a receiver may be appointed but does not grant any powers to a receiver beyond those listed in SDCL chapter 21-21. Id. Under SDCL 21-21-5, a receiver may be appointed for all other cases where receivers have heretofore been appointed by the usages of courts of equity. There is no indication that the use of a litigation receiver has ever been allowed under these circumstances. See 65 Am.Jur.2d, Receivers, §§ 1-489; 4 J.N. Pomeroy, A Treatise on Equity Jurisprudence, § 1334 (5th ed., 1941). The appointment of a receiver during the pendency of a suit does not determine any rights or title of the litigant parties[.] Id. at § 1336. The receiver does not act for the benefit of one party or another but impartially for the benefit of the court. Id. SDCL 21-21-9 provides: 21-21-9. Powers of receiver in collection and management of property. The receiver has, under the control of the court, power to bring and defend actions in his own name as receiver, to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the court may authorize. It is obvious that the powers of a receiver of a corporation under this section and in this chapter are limited to control over its own property. No where is a receiver of a corporation given power to control the property of stockholders. Even more so, no power is given to hear and determine conflicting claims among its officers, directors and stockholders. That is the essential breach of authority in this case. Even the trial court judge would not have the power to decide conflicting claims among stockholders in the absence of a trial, so he cannot appoint a litigation receiver to do what he cannot do. SDCL 21-21-9. The trial court improperly delegated judicial authority to a receiver and abused its discretion by accepting the settlement and dismissal of the case without sufficient knowledge of the settlement agreement. Judicial power must be exercised by the courts and cannot be delegated or surrendered by a court or judge to a nonjudicial body or person, even with the consent of the parties[.] 16 Am.Jur.2d, Constitutional Law, § 334. The trial court's order gave the receiver authority to act as judge and jury. Through the actions of the receiver, Murdocks and McCroden have been denied any and all derivative rights to trial on the issue of damages. The trial court would not have had authority to dictate the settlement of a case triable to a jury or factfinder under any circumstances. Nevertheless, this trial court granted authority, that it did not possess, to a litigation receiver to dictate settlement without direction or accountability. We have no alternative but to reverse and remand this entire case to the trial court for new trials based on proper jury instructions. MILLER, C.J., and KONENKAMP, J., concur. AMUNDSON, J., concurs specially. WUEST, Retired J., dissents.