Opinion ID: 2634494
Heading Depth: 1
Heading Rank: 6

Heading: to the Appointment of the Interim CEO

Text: ¶42 In their alternative argument, which challenges the propriety of the trial court's decision to bar their objection based on waiver, defendants fail to convince us that the trial court abused its discretion in reaching such a conclusion. The unchallenged findings of fact present no evidence that the trial court abused its discretion in barring the defendants' objections. ¶43 Defendants claim that Madame Chen had no right to object because she was not a party to the suit at the time the trial court appointed the interim CEO and did not become a party until ten months thereafter. Thus they argue that when she did finally join the lawsuit as a party, she filed her motion to vacate the orders relating to the appointment of the interim CEO in a timely manner. In the case of Ms. Stewart and Taig Stewart, defendants assert that because they challenged the appointment of the interim CEO in their July 23, 2002, motion to disqualify Mr. Holman as special master and interim CEO, they did not waive their right to challenge his appointment. ¶44 As stated above, waiver is a mixed question of law and fact, and discretion will be given to the trial court in the application of this doctrine. In light of the unchallenged facts supporting the trial court's holding, it is clear that Madame Chen and the Stewarts did not bring their objection to the appointment of the interim CEO in a timely manner. ¶45 Over ten months after Madame Chen became a party to the suit, she entered her motion to vacate challenging the appointment and actions of the interim CEO. Similarly, Ms. Stewart and Taig Stewart not only stipulated to the original orders appointing Mr. Holman as interim CEO/special master, [8] but also participated in the litigation for nearly a year before bringing an objection to Mr. Holman's appointment. [9] Furthermore, both Madame Chen and Ms. Stewart waited to bring their objection until after Mr. Holman took actions against them, including filing several extensive and unfavorable reports, filing claims against them on behalf of E. Excel, and successfully seeking a preliminary injunction. Defendants have also made no effort to challenge the trial court's reliance on E. Excel's thirty-three-paragraph summary of Madame Chen's involvement in the litigation, the difficulties that she created when E. Excel attempted to serve her, and the general hide-and-seek tactics she employed until E. Excel announced its intention to seek default, all of which the trial court cited as reasons supporting its decision. ¶46 Cognizant of the broad discretion we give the trial court on issues of waiver, we affirm its determination that the totality of the circumstances warranted the inference of waiver. Soter's, Inc., v. Deseret Fed. Sav. & Loan Ass'n, 857 P.2d 935, 939-41 (Utah 1993). Madame Chen's ten months as an active party in the litigation, her membership on E. Excel's board of directors when the present litigation began, her extensive involvement in the rival Apogee corporation, and the fact that she lived with Ms. Stewart all lead us to conclude, as did the trial court, that Madame Chen had ample opportunity to bring her objection in a timely manner. ¶47 Furthermore, if, as defendants assert, Madame Chen, due to her position as a matriarch in a traditional Chinese family, was an equitable stock owner and intricately involved in the decisions of the company, she could have brought her objection to the appointment of the interim CEO through a motion to intervene or through a derivative suit as an equitable stock owner. See Utah R. Civ. P. 23.1, #24. The fact that this, as defendants themselves contend, is a traditional Chinese family, in which the elders play a large, if not controlling, role in the company's dealings, without regard to corporate formalities, further supports the conclusion that defendants had sufficient opportunity to bring their challenge. ¶48 Finally, because the powers of the interim CEO appointed in the present case are largely identical to those of a receiver, the same policy concerns that justify application of the doctrine of waiver to the appointment of a receiver apply here. An objection to a court's decision to appoint a receiver can be waived if not brought in a timely manner. Score v. Wilson, 611 P.2d 367, 368 (Utah 1980). [10] The policy behind this rule has been articulated by the Fifth Circuit in Cruz v. Hauck: A party objecting to a reference should do so prior to or at the time of the reference. If this is infeasible, the objection should be made to the judge at the earliest possible opportunity. Such procedure permits the proper and efficient administration of the judicial process. Otherwise, a party disappointed with a master's report would be able to obtain 'a second bite at the apple' by withholding his objection to the reference until after the report. 515 F.2d 322, 331 (5th Cir. 1975) (citations omitted). ¶49 Here, the parties specifically agreed that the trial court would appoint an officer to run their corporation because the situation made it impossible for them to do so. Once the parties agree to transfer the responsibility of running the corporation to a court appointed functionary, they cannot wait to see if such a decision fails to serve their interests and subsequently object to the appointment. See id. To preclude application of the doctrine of waiver here would essentially allow defendants a second bite at the apple. Id. Accordingly, we hold that an objection to the appointment of a court appointed interim CEO is subject to waiver, and was waived by defendants. C. Equitable Authority To Appoint an Interim CEO ¶50 Had defendants properly fashioned their claim to address the equitable power of the court to appoint an interim CEO, they nevertheless would have failed in their challenge because the trial court has the equitable power to appoint an officer such as an interim CEO. Courts have (at least in the absence of legislation to the contrary) inherent power to provide themselves with appropriate instruments required for the performance of their judicial duties. This power includes authority to appoint persons unconnected with the court to aid judges in the performance of specific judicial duties, as they may arise in the progress of a cause. Ex Parte Peterson, 253 U.S. 300, 312 (1920). In situations such as the present case, where misappropriation of corporate assets by insiders is asserted, courts have historically appointed receivers in order to preserve assets during the pendency of the suit. Richardson v. Ariz. Fuels Corp., 614 P.2d 636, 638 (Utah 1980) (citing Stevens v. S. Ogden Land, Bldg. & Improvement Co., 47 P. 81 (1896)). Courts have also generally appointed receivers where a request is made by stockholders of a corporation suing either individually or on behalf of the company, Stevens, 47 P. at 83, or where dissent among a corporation's managers prevents the conduct of the business without serious losses. Shaw v. Robinson, 537 P.2d 487, 490 (Utah 1975). Though somewhat uncommon, the appointment of an interim CEO for the same purpose and with the same powers as a receiver is not unprecedented. See, e.g., In re Property Co. of Am. Joint Venture, 110 B.R. 244, 246 (Bankr. N.D. Tex. 1990) (appointing interim CEO during bankruptcy action). ¶51 The authority to appoint a receiver is based on the court's inherent equitable power. Interlake Co. v. Von Hake, 697 P.2d 238, 239 (Utah 1985) (A receivership is an equitable matter and is entirely within the control of the court.) (citing Shaw, 537 P.2d 487). Rule 66 of the Utah Rules of Civil Procedure also recognizes this inherent equitable power. See Utah R. Civ. P. 66(a)(6) (allowing appointment of receiver in cases where receivers have heretofore been appointed by the usages of courts of equity). ¶52 Contrary to the assertions of defendants, among a receiver's powers is the authority to conduct and settle litigation in order to manage the company. Stevens, 47 at 83 (authorizing receiver to bring suit to obtain books, property, and evidence of indebtedness belonging to the corporation); 19 C.J.S. Corporations § 791 (1990) (A receiver for a corporation, for purpose of litigation, ordinarily stands in the place of the corporation, and may bring any action which the corporation could have maintained.); Meyer v. Fleming, 327 U.S 161, 167-68, (1946)(holding a receiver may settle suits on behalf of company). ¶53 Here, rather than appoint a receiver, both parties stipulated to the appointment of an interim CEO/president who, as indicated in the interim order of February 21, 2001, was given full executive authority to act on behalf of the Company, and conduct its business, subject to the continuing oversight of the board of directors and the Court. The purpose of his appointment was to forestall the erosion of corporate assets and manage the company until all legal issues before the court were resolved. As interim CEO, Mr. Holman was thus given essentially the same powers as those of a receiver. Even in authorizing him to conduct litigation on behalf of the company, the court was not granting him powers outside those of a general executive officer of a corporation or a court-appointed receiver. [11] ¶54 The court had the inherent equitable authority to appoint a receiver with the same powers it granted Mr. Holman. As a result, we refuse to hold that such an act was void ab initio simply because the court designated Mr. Holman an interim CEO. [12] D. The Court and Parties Decided To Extend