Court Opinion

ID: 9522386
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:24:29.639244+00
Date Added: 2024-06-11T13:02:41.954106
License: Public Domain

WUEST, Retired Justice
(dissenting).
The trial court appointed a receiver to consider the settlement offer made by two of Hickok’s directors pending before the corporation and also to consider “all other litigation in which the corporation and its shareholders are involved.” The appointment was made under the authority of SDCL 21-21-3 which provides, in pertinent part:
[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 ... is unable to exercise its corporate functions because of continued dissention between or neglect by its stockholders, directors and officers.
Because I believe this statute is broad enough to include the appointment of a receiver under the circumstances presented in this case, I dissent.
A settlement offer had been made to the corporation by Judith Sides and Maxine Case stemming from the breach of fiduciary duty judgment against them. Hickok’s board of directors, consisting of Case, Sides, Bret Hamm, Sandra McCroden, and Craig Mur-dock, met May 10, 1993 to discuss resolution of the corporation’s litigation. Acknowledging that every one of Hickok’s board of directors had a conflict of interest in reviewing the proposed settlement offer, the corporation voted 3-2 to allow the offer to be reviewed by an independent litigation committee. Hickok’s explained this decision of the corporation to the court in a hearing on May 13, 1993. The trial court, stating the stockholders and the present members of the board of directors should not be deciding the question, appointed a litigation receiver to consider the settlement offer.
In setting forth grounds for its appointment of the receiver, the trial court specifically noted “because of the conflicts and dissension which exists on the Board of Directors of Hickok’s it is unable to exercise its corporate functions with respect to the consideration of said settlement offer and all other litigation in which the corporation and its shareholders are involved.” Webster’s Dictionary defines “dissension” as “disagreement, especially partisan and contentious quarreling,” Webster’s New Collegiate Dictionary 331 (1973), and defines “contentious” as “exhibiting an often perverse and wearisome tendency to quarrels and disputes.” Id. at 245. The trial court found the definition of “continued dissension” had been met by these parties. The “corporate function” involved here was Hickok’s continued entanglement in protracted litigation between and among its own directors, officers, and shareholders.
Murdocks and McCroden claim no factual basis existed for the trial court’s appointment of a receiver. However, the record is replete with examples of the continued quarreling and disputes among the parties to this appeal. As evidenced by the settled record and previously acknowledged by the majority opinion, this closely-held corporation has been involved in litigation between these same parties, Hickok’s directors, officers, and shareholders, for four of the five years it has been incorporated. At a hearing held October 1,1993 to receive Murdocks’ and McCro-den’s objections to the receiver’s acceptance of a settlement offer for the corporation, the trial court again stressed its reason for appointing a receiver for the limited purpose of deciding matters involved in Hickok’s ongoing litigation. The court stated there was no one to act independently for the corporation involving its litigation and there was continued deception existing between the stockholders, directors, and officers. At the conclusion of this hearing, the trial court approved the settlement, finding the receiver *391had acted appropriately on behalf of the corporation.
“It is to be noted that a close corporation is one in which management and ownership are ‘substantially identical to the extent that it is unrealistic to believe that the judgment of the directors will be independent of that of the stockholders.’ ” Thisted v. Tower Management Corp., 147 Mont. 1, 409 P.2d 813, 820 (1966). O’Neal’s treatise on Close Corporations also provides insight to understanding the interrelationships within a close corporation:
‘There usually is no division between the shareholder-owners and the director-managers. Either the stockholders themselves are the directors, or they so closely dominate and control the directors that the latter are in fact little more than their agents. Frequently the shareholders go even further, and besides being directors are also the officers and executives of the company. In any event, either through serving as the directors and officers themselves or through detailed provisions in the charter, by-laws, or stockholder agreements, the shareholders personally manage and control the business directly or else perform these functions through others who in fact simply act as their agents.’
O’Neal & Thompson, O’Neal’s Close Corporations § 1.07, at 28 n. 1 (3d ed. 1994) (quoting Kramer, Foreward to Symposium Issue on “The Close Corporation,” 18 Law & Contemp.Probs. 433 (1953)). The trial court specifically found, and based its decision to appoint the receiver upon, the absence of independence and objectivity on behalf of the corporation in considering any pending settlement offers, and the continued deception and dissension among the parties who are at once shareholders and corporate directors and officers.
“[T]he propriety of appointing a receiver for a corporation is a matter resting ‘largely' within the sound judicial discretion of the trial court.... Unless it appears that there has been a clear abuse of such discretion, an appellate court will not interfere with the exercise of that discretionary power, even though it is settled that the power is not arbitrary nor absolute, and is at all times subject to review.” Fletcher Cyclopedia Corporations, Receivers, § 7697 (1989 rev. vol.). “[Cjaution must be exercised to see that there is a good ground for a receiver and a necessity exists justifying an appointment. When this is determined in favor of a receivership, the courts should not, and do not, hesitate to appoint a receiver.” Id. The Supreme Court of Iowa, acknowledging the receiver’s scope of authority, has stated “[t]he powers conferred upon the receiver by virtue of the terms of the statute are not necessarily a limitation upon the powers that could be conferred upon a general receiver by the court of equity making the appointment.” Bierma v. Ellis, 212 Iowa 366, 236 N.W. 402, 404 (1931). Courts have vested receivers with the authority to initiate lawsuits (Woodliff v. Frechette, 254 Mich. 328, 236 N.W. 799, 800 (1931); Ross v. Long, 219 Iowa 471, 258 N.W. 94, 95 (1934); Luikart v. Flannigan, 130 Neb. 908, 267 N.W. 169, 169 (1936)), and to settle claims by compromise (Ellis v. Citizens’ Bank of Carlisle, 218 Iowa 750, 251 N.W. 744, 747 (1933); In re E.C. Warner Co., 232 Minn. 207, 45 N.W.2d 388, 394 (1950); In re Briggs, 51 Mich.App. 421, 215 N.W.2d 722, 729 (1974)).
In Senger v. Senger, 308 N.W.2d 395, 397 (S.D.1981), we stated “ ‘the appointing, or the refusing to appoint, a receiver, is largely a matter of the sound judicial discretion of the trial court.’ This Court will not interfere with the trial court’s decision in this regard unless a clear abuse of discretion is shown.” (citing Brown v. Brown, 46 S.D. 469, 470-71, 193 N.W. 596, 596 (1923)). “An abuse of discretion refers to a discretion exercised to an end or purpose not justified by and clearly against, reason and evidence.” Bakker v. Irvine, 519 N.W.2d 41, 45 (S.D.1994); In re E.D.J., 499 N.W.2d 130, 133 (S.D.1993); Cody v. Edward D. Jones & Co., 502 N.W.2d 558, 565 (S.D.1993); Herndon v. Herndon, 305 N.W.2d 917, 918 (S.D.1981). The test when reviewing matters involving judicial discretion is “ ‘whether we believe a judicial mind, in view of the law and the circumstances, could reasonably have reached that conelusion[ ]’ ” Hrachovec v. Kaarup, 516 N.W.2d 309, 311 (S.D.1994); Dartt v. Berghorst, 484 N.W.2d 891, 894 (S.D.1992); *392Dacy v. Gors, 471 N.W.2d 576, 580 (S.D.1991), not “whether the judges of this court would have made an original like ruling.” Fox v. Fox, 467 N.W.2d 762, 766 n. (S.D.1991) (citing In re Donahue, 464 N.W.2d 393, 395 (S.D.1990)). “Only a ‘clear’ abuse of discretion warrants reversal.” Gross v. Gross, 355 N.W.2d 4, 7 (S.D.1984) (citing Rykhus v. Rykhus, 319 N.W.2d 167, 170 (S.D.1982)).
In Brown, this court upheld the circuit court’s appointment of a receiver to take charge of certain real and personal property pending a divorce action. In our affirmance, we noted the attitude of the parties “was, and is, fraught with much hostility” and there had been a significant amount of controversy regarding ownership of the property. Brown, 193 N.W. at 596. We stated “[t]he general rule is that the action of the court must be governed by sound and judicial discretion, taking into account all the circumstances of the case, exercised for the purpose of promoting the ends of justice and protecting the rights of all parties interested in the controversy and subject-matter-” Id. at 597 (quoting 23 R.C.L. § 4) (emphasis added).
Similarly, the Texas Court of Civil Appeals acknowledged with approval the appointment and continuance of a receivership that had been ongoing for more than two years for a solvent corporation where stock ownership was almost equally divided between two bitterly divorcing parties. The trial court stated corporation assets were in danger of “being frittered away and wasted by indeterminable litigation and controversy.” Hammond v. Hammond, 216 S.W.2d 630, 632 (Tex.Civ.App.1948). The appellate court noted:
‘[t]he general rule is that dissatisfaction of stockholders and dissensions and disagreements among stockholders and directors are not in themselves grounds for the appointment of a receiver of the corporate property. However, the courts have been comparatively liberal in the appointment of a receiver of a corporation, even though it is a solvent and going concern, where there are such dissensions among the stockholders, directors, or officers that the corporation cannot successfully carry on its corporate functions, imminent danger of loss of assets is threatened, and no other remedy appears to be adequate.’
Hammond, 216 S.W.2d at 632 (quoting 48 Am.Jur. §§ 47-48). See also, 65 Am.Jur.2d Receivers § 61 (1972). More recently, this same court, reviewing a case where the parties had had “numerous disputes” and “lingering hard feelings,” stated the appointment of a receiver for a corporation was not void due to the existence of other adequate remedies, where such remedies would not have been as prompt, complete, practical, and efficient as the appointment of a receiver. Citizens Bldg., Inc. v. Azios, 590 S.W.2d 569, 574 (Tex.Civ.App.1979).
Finally, it must be noted that here, the corporation itself consented to the appointment of a litigation receiver. “[Wjhere there is consent to the appointment of a receiver, any challenge thereafter to the appointment is waived.” Norwest Bank Des Moines v. Bruett, 432 N.W.2d 711, 713 (Iowa App.1988). See also Minnesota Hotel Co. v. ROSA Dev. Co., 495 N.W.2d 888, 892 (Minn.App.1993) (the statutory requirements for appointment of a receiver need not be met when the parties contractually agree otherwise). Consent by the corporation was provided during Hickok’s board of directors’ meeting May 10, 1993 when the corporation voted 3-2 to allow an independent committee to review the settlement offer “to see if the offer was reasonable and fair, and if it would be accepted by the corporation.”
In short, Case and Sides had been found in breach of their fiduciary duty owed to the corporation, Hickok’s. Case v. Murdock, 488 N.W.2d 885, 891 (S.D.1992). Prior to trial on the damages issue, Case and Sides made an offer of settlement to Hickok’s. Hickok’s board of directors met May 10 and approved the appointment of an independent review committee to review the offer. Hickok’s explained its action to the trial court. The two board members who were opposed to the appointment argued their position to the court. The trial court found, due to continued dissension and deception by Hickok’s board members that no member of the board was able to independently review, accept, or reject the settlement offer made to the cor*393poration. The trial court then appointed an independent receiver, to act on the board’s behalf in considering the offer as well as other litigation involving the corporation and its shareholders.
Under the facts of this case, I can find no abuse of the trial court’s discretion in appointing a receiver for the limited purpose of considering the settlement offer and other aspects of the corporation’s litigation. Further, the trial court was within its statutory grant of authority in doing so. Because both factual and legal bases exist for the appointment of a receiver in this case, I dissent.