Texas Consol. Compress & Manufacturing Ass'n v. Storrow

After stating the case as above, the opinion of the court was delivered by PAEDEE, Circuit Judge. The first question to be passed upon is the motion to dismiss the appeal. The order appealed from was granted on an order to the defendant to show cause, if any it could, why a receiver and auditor should not be appointed as prayed for; and, as set forth in the state9 naent of facts, it is directed mainly, if not entirely, to the appointment of a receiver. The only — in terms — injunctive feature contained in the order is a paragraph to the effect that they, and each of them, (that is, the defendant company and its officers), are enjoined from interfering in any way whatever with the possession or management of any part of the business or property over which said receiver is appointed, or from in any way preventing, or seeking to prevent, the discharge of his duties as such receiver. There is strong reason to hold that this provision is surplusage. An inhibition to the company and its officers, as well as to all other persons, to interfere, necessarily results from the order appointing the receiver. Any person connected with the company, or independent of the same, who interferes with the possession of a receiver appointed by the court, or hinders him in the discharge of his duties, is amenable to process for contempt, whether such inhibition is contained in the order appointing the receiver or not. If, after making the above order, the trial court had entered, or if this court now should enter, an order in terms setting aside only the appointment of the receiver, all the other parts of the original order would immediately and without specific mention disappear, and cease to have any force. In Highland Ave. & B. R. Co. v. Columbia Equipment Co., 168 U. S. 627, 18 Sup. Ct. 240, the supreme court held that an order appointing a receiver, and containing no distinctive injunctive features, was not appealable. After quoting the section of the act creating the circuit courts of appeals (26 Stat. 517, as amended 28 Stat. 666), the court says (page 660, 168 U. S., and page 241, 18 Sup. Ct.): “Under this section it has been decided that, when an appeal is taken from an interlocutory order or decree granting or dissolving an injunction, the whole of such interlocutory order or decree is before the court of appeals for review', and not simply that part which grants or dissolves the injunction: and that on the hearing in the court of appeals that court may consider and decide the case upon its merits. Smith v. Iron Works, 165 U. S. 518, 17 Sup. Ct. 407; In re Tampa Suburban R. Co., 168 U. S. 583, 18 Sup. Ct. 177. But each of those cases proceeded upon the fact that there was a distinct order granting, continuing, or dissolving an injunction. In the case at bar there is no such order. It is true, following the order of appointment, there is a direction to the defendant, its officers, directors, and agents, to turn over to Oampbell the property of which he is appointed receiver; but that is only incidental and ancillary to the receivership. This is obvious, for, if the court subsequently entered an order in terms setting aside only the appointment of the receiver, all the other parts of the original order would immediately and without specific mention disappear, and cease to have any force, indeed, the mere appointment of a receiver carries wilh it the duty on his part of taking possession, and the further duty of those in possession of yield ing such possession. So that while, as a part of an order appointing "a receiver, there is something in the nature of a mandatory injunction, — that is, a command to the receiver to take, and to the defendant to surrender, possession, — yet such command is not technically and strictly an order of injunction.” In Re Tampa Suburban B. Co., referred to above, which is relied upon to maintain the appeal in this case, it is stated in the headnotes that: “Where, as in this case, an order is made by a circuit court, appointing,a receiver, and granting an injunction against interfering with his management of the property confided to him, an appeal may be taken to the circuit court of appeals, carrying up the entire order.” [10] An examination of the facts in that case will show that there was a preliminary order of injunction issued before the appointment of a receiver, and that such preliminary order of injunction was continued at the time the receiver was appointed; and that the order appointing a receiver contained a provision “enjoining the officers, directors, and agents of the defendant companies from interfering in any manner whatever with the possession and management of any part of the property over which the receiver is hereby appointed, or from interfering in any way to prevent the discharge of the duties of such receiver,” language nearly identical with the order appointing a receiver in the present case. In the opinion of Mr. Justice Fuller it is stated that a review was sought of two interlocutory orders, — one a preliminary restraining order, and the other appointing a receiver, and continuing the injunction, in aid of the receivership; and he says: “By the seventh section of the judiciary act of March 3, 1891, c. 517 (26 Stat. 826, 828), as amended by the act of February 18, 1895, c. 96 (28 Stat. 666), it is provided: “That where, upon a hearing in equity, in a district court or ,a circuit court, an injunction shall be granted, continued, refused or dissolved by an interlocutory order or decree or an application to dissolve an injunction shall be refused in a case in which an appeal from a final decree may be taken under the provisions of this act to the circuit court of appeals, an appeal may be taken from such interlocutory order or decree granting, continuing, refusing, dissolving, or refusing to dissolve an injunction to the circuit court of appeals.’ The suit in which the orders complained of were entered is one in which an appeal from a final decree might be taken to the ■circuit court of appeals, and this even though the question of the jurisdiction •of the circuit court was involved. U. S. v. Jahn, 155 U. S. 109, 15 Sup. Ct. 39. An appeal to the circuit court of appeals might, therefore, have been taken from these orders, or from an order refusing to set them aside and dissolve the injunction. We are not called on to say that an appeal would lie from an order simply appointing a receiver, but, where the order also grants an Injunction, the appeal provided for may be taken, and carries up the entire order, and the case may, indeed, on occasion, be considered and decided on its merits. Smith v. Iron Works, 165 U. S. 518, 17 Sup. Ct. 407.” Considering these cases adjudged in the supreme court, I entertain grave doubts as to whether an appeal will lie in the instant case; but the majority of the court are of opinion that the appeal is warranted by the decision in Re Tampa Suburban R Co., supra. The motion to dismiss the»appeal is therefore denied. UpoD an appeal from an interlocutory order containing an injunction the circuit court of appeals may consider and decide upon the propriety of the entire order, and even upon the merits of the case. See Smith v. Iron Works, 165 U. S. 518, 17 Sup. Ct. 407. This case was before the court at the last term on appeal from a final decree dismissing the complainants’ original bill for want of equity, and in that case (31 C. C. A. 139, 87 Fed. 612, 616) Judge Swayne, delivering the opinion of the court, said: “The bill alleges, and the demurrer admits, that during the time in question the association had earned sufficient net profits from the operation of the compresses to pay the 6 per cent, dividend on its preferred stock. It also states that the said association wrongfully and willfully diverted the net profits earned by it, and has used and appropriated the same in divers and sundry ways, for the purpose of depriving the complainants of their dividends, and of destroying the value of the preferred stock; and this was done by the majority of holders of the common stock, in fraud of the rights of [11] complainants. While if: lias been determined that the claim of tlie holders of the preferred stock against the corporation is not strictly a debt, but is contingent upon the existence of sufficient net profits to pay, it is evident that preferred stock is only a security for a loan, upon which a certain and definite interest was to be paid while the corporation existed, and the full amount thereof returned to the lender when it was dissolved, before the holders of tlio common stock should receive anything. The preferred stockholder has no vote or voice in the management of the corporation, lie possessed none of the rights of a. common stockholder as sncli. and about the only difference between him and the ordinary lender of money was that he was not to receive his interest unless there were sufficient net profits to pay the same. Therefore, so far as the face value of the preferred stock is concerned, it is in the nature of a debt against the corporation, and the interest thereon becomes a. debt as soon as it can be shown that there were profits wherewith to pay it, and becomes a lien xirior to the rights of the holders of common stock upon the net earnings, if there were such, for the amount of rhe dividend, and can be allowed wherever invested by the company. This contention is further maintained by 1 lie fact that the company reserved the right to issue, in lieu of the preferred stock, first mortgage bonds, bearing interest at the rate of (> per cent, per annum, secured ’ey a mortgage upon all the compresses of the association; thus making this loan represented by the preferred stock payable at any time upon the will of the corporation. The other allegations in complainants’ bill in regard fo judgments; the insolvency of the corporation; ‘that it could no,t he operated as a going concern with profit, and ought to be disintegrated, and the assets divided, and that part of the property had been sold without authority; that tlieir right to have a dividend declared on their stock had been neglected and refused; that their right to receive the full face value thereof had been denied by the corporation.’ — are matters that can only be investigated and determined by a court of equity. The investigations of the amount of the net income, and the proper disposition thereof, the marshaling of assets, the priority of liens, and the foreclosure of same, as well as the prayer for injunction and receiver pen-dente lite, are proper matters for the consideration of the chancellor, and cannot be proceeded with in a court of law. The case made by the bill, if sustained by proof, would undoubtedly on tide complainants to relief.” While holding that the original bill, if maintained, showed equities justifying the interference of the court, our former decision did not underlake to point out particular remedies; but from what was said it is easy to see that there might result an accounting to ascertain if there had been net earnings to such an extent as to warrant the payment of dividends upon the preferred slock, and also that, if certain contemplated acts of mismanagement were insisted upon, an injunction might be issued; but from nothing contained in the opinion does it follow that, if the matters alleged in the original bill should be established, the complainants would be entitled pendente,lite to have the entire management of the company’s business and property taken out of the hands of its board of directors by the appointment of a receiver; certainly not unless it should also be clearly shown that the company was insolvent, and that its affairs had been, and were likely to be, mismanaged, to the great detriment of the stockholders and creditors. On (lie case in the present transcript it is an open question with us whether the affairs of the company have lately been managed well or ill, but it does appear that nearly all the holders of preferred stock are also large; holders of common stock, and that a large majority of both, the common and the preferred, indorse and approve the management of the company’s affairs since .1893, have confidence in the present board of directors and its pur [12] poses, and strongly oppose the appointment of a receiver. Whether the company is insolvent depends upon whether or not its past net earnings have been such as to require a dividend on the preferred stock for the years 1893 to 1898, inclusive, in which event the debts due for dividends on such preferred stock, added to the conceded outstanding indebtedness, would probably exceed in amount the value of all the company’s property. The test suggested by counsel for appellees, that the preferred stock and the guarantied dividends accruing since 1892 amount to a sum largely in excess of the value of all the company’s property, and that, in fact, the common stock has no interest whatever in the company’s property, is not the correct test to apply, for, as a matter of fact, at no time since the company was organized has the value of its property been equal to the amount of the preferred stock. Viewing the complainants below (appellees here) as stockholders applying for a receiver, the case made does not show that the company is insolvent in any such sense as will allow a stockholder to maintain a suit for the dissolution of the corporation, and the winding up of its affairs. Unless the corporation is insolvent, or its affairs are being fraudulently mismanaged by its officers in authority, to the detriment of creditors or stockholders, a court of equity ought not, at the instance of a stockholder, in the absence of statutory authority, to interfere to appoint a receiver, with a view to the winding up of the affairs of the corporation. So far, then, as the present suit is one brought by stockholders of a corporation for the protection of its assets and the liquidation of its affairs, no proper case is presented for the appointment of a receiver. The complainants, as creditors, have no equity authorizing them to apply for and obtain the appointment of a receiver, for the simple reason that their claims against the corporation have not been liquidated by decree or judgment, and are denied as existing, exigible debts. It is not necessary to cite authorities to the effect that in the courts of the United States a creditor who has no lien, and whose demand has neither been adjudicated nor admitted, has no standing in equity for the appointment of a receiver of his debtor’s property, even if the debtor be insolvent. A discussion of the pleadings and evidence in the record on all the points argued by the very able counsel at the bar and by brief would extend this opinion to great length, and would, in our view of the case, be unnecessary. In our opinion, the case shown does not warrant the appointment of a receiver in the interest' of either creditors or stockholders. If the complainants have an accounting as to the < net earnings from 1893 to 1898, inclusive, and are allowed injunctions against any fraudulent or ultra vires acts proposed by the management of the company, their rights will be fully protected, at least up to such time as they can show to the court adjudicated demands entitling them to payment, and, failing that, to the liquidation of the corporation as insolvent. The order appealed from is reversed, and the case is remanded, with instructions to discharge the receiver, pass his accounts, and thereafter proceed in conformity with the views herein expressed, and as equity may require.