Bogrette v. Young

Per Curiam. Appellant law firm appeals by right the trial court’s order denying appellant the right to assert a claim against appellee receiver, for legal services rendered. We reverse and remand. The legal services in question were rendered during the course of litigation which led to the dissolution of the ecclesiastical corporation formed by the individual defendants. Appellant represented these defendants in their capacity as officers of the corporation. Nonetheless, the trial court found that appellant’s services accrued solely to the benefit of the individual defendants, and not to the dissolved corporation itself. The court reasoned that the dissolved corporation was never a bona fide church, but instead merely a financial arrangement used by defendants as a subterfuge to defraud plaintiffs in certain transactions. Thus, the court concluded, appellant’s legal work accrued solely to the benefit of the individual defendants, and its cost should not be chargeable to the receiver as if there had been a bona fide corporation or any noticeable benefit to such a corporation. We believe that the trial court’s ruling is inconsistent with the facts set forth in the record. Defendants were undeniably officers of the corporation, and they retained appellant not to represent their individual interests, but primarily to defend the original action against the corporation itself, and to oppose dissolution and receivership. The court’s own order dissolving the corporation implicitly acknowledges that the individual defen [434] dants were sued primarily in their corporate capacity: the court referred to them as "defendant officers of the corporation”. We conclude that appellant was in fact representing the corporation, and that the trial court erred in characterizing appellant’s work as having been solely on behalf of individual defendants. The question remains whether appellant, acting as a creditor of the corporation, may properly file a claim against the receiver. In order to resolve this question, the Court must examine the language of the trial court’s original order appointing a receiver. "The receiver * * * shall take possession * * * of all the properties * * *. The proceeds of all such properties shall be used to pay all lawful claims against said corporation. All persons * * * who have conveyed, donated or contributed substantially to the funds or property of said corporation * * * shall be entitled to prove their claims thereunder.” The language of the foregoing order appointing a receiver and authorizing claims is broad and unqualified. Consistent with traditional notions of receivership, we interpret this order to permit all creditors of the dissolved corporation to prove their claims against the receivership. In this regard, we note the well-established rule that a receiver has the duty of administering the assets of the receivership for the benefit of all of that estate’s creditors. 19 Mich Law & Practice, Receivers, § 53, p 390. More specifically, we note that, where an application has been made to appoint a receiver, attorney fees and expenses which have been incurred in a good faith effort to oppose dissolution and the appointment of a receiver may become a valid [435] claim against the receiver. 66 Am Jur 2d, Receivers, §285, p 103; Anno, 89 ALR 1531. The Supreme Court has upheld a claim for attorney fees where the attorney represented himself and others in an effort to oppose dissolution of a corporation under a leasehold trust mortgage. In re Dissolution of Detroit Metropolitan Corp, 289 Mich 358, 379-380; 286 NW 646 (1939). Accord, Magnusson v American Allied Ins Co, 282 Minn 287; 164 NW2d 867 (1969); McConnell v All-Coverage Ins Exchange Automobile & Fire, 229 Cal App 2d 735; 40 Cal Rptr 587 (1964). We are mindful of the equities favoring plaintiffappellees. The corporation was dissolved because it was no longer fulfilling its legitimate purpose and was being used as a means to defraud plaintiffs of property which had rightfully belonged to them. From plaintiffs’ standpoint, it seems somewhat unfair that the corporation’s legal fees would be paid from the pool of property which the court sought to preserve for plaintiffs. Each plaintiff’s share of entitlement to receivership proceeds could be measurably reduced by any order allowing appellant’s claim for fees. On the other hand, the equities favoring appellant are even more compelling. The denial of its claim for fees does not merely decrease its share of entitlement by some undetermined percentage, but instead completely eliminates any prospect for compensation for its work on behalf of the corporation. The hardship wrought upon appellant is therefore total rather than merely partial or incremental. More compelling still is the fact that appellant’s legal work was performed at all times in good faith; there has been no allegation, let alone any showing, that appellant acted in anything other than good faith. The quality of its [436] representation has not been challenged. In short, appellant has provided a service for which it would receive no compensation whatsoever under the trial court’s ruling. In the words of the trial court’s order appointing the receiver, appellant has "contributed” a substantial service, and should therefore be entitled to prove its claim. The order denying appellant permission to file a claim must be reversed.1 Appellant goes on to claim error in the trial court’s refusal to instruct the receiver to sell certain parcels of real estate held in the corporation’s name. According to appellant, these parcels could have been liquidated in order to generate funds to pay creditors such as appellant. This latter argument is without merit. The trial court found that there was a general plan for development of a particular area of land formerly owned by the corporation. This area was to be developed into a residential subdivision. The trial court’s previous judgment declared that the parcels in question were to be preserved exclusively for recreational use by residents of the subdivision. The previous judgment further ordered that the receiver assume control of and eventually sell certain additional subdivision parcels still held in the corporation’s name, with the proceeds to be used in completing the development of the recreational-use parcels in [437] question. Finally, the court’s previous judgment ordered that corporation creditors be paid from the proceeds of the sale of other, unrelated property held in the corporation’s name. The clear language of the court’s previous judgment leaves no doubt that the corporation’s creditors may be paid from the proceeds of certain corporate property, but that neither the unsold residential lots nor the parcels reserved for residents’ recreational use may be liquidated to pay creditors. These lots, having been earmarked for the enjoyment of subdivision residents, were properly eliminated by the trial court as a potential source of funds to pay appellant. Summarizing the foregoing, we conclude that the trial court erred in denying appellant permission to file its claim for attorney fees incurred in representing the now-dissolved corporation. The order denying this claim must be reversed. On the other hand, the trial court acted properly in refusing to require liquidation of the subdivision parcels in question. Other corporate property must be used as the source of funds from which to pay creditors such as appellant. Reversed and remanded for proceedings consistent with this opinion. Footnotes [1] In an evidentiary hearing, the trial court found that the sum $44,001.82 represented an accurate and reasonable statement of attorney fees and expenses incurred by appellant during the proceedings in question. This is the amount which should be recognized as a valid claim in favor of appellant. The actual disbursement of funds is a matter left to the discretion of the trial court and the appointed receiver. We do not address the question of appellant’s relative priority among creditors, nor do we find any occasion to require the receiver to liquidate any particular corporate asset in order to satisfy appellant’s claim. Our sole finding is that appellant’s claim for attorney fees is as valid as that of any other creditor of the former corporation.