Cahall v. Lofland

Delaware Court of Chancery · 1919 · Corporations

12 Del. Ch. 125 (1919)

Updated August 22, 2026

CorporationsReceiversDissolutionLiquidationreceiverreceiver's counseldissolved corporationwinding up

Facts

The Lewes Fisheries Company was a Delaware corporation that had been voluntarily dissolved, and its directors were winding up its affairs as statutory trustees. A stockholder, Charles V. Jones, filed a Chancery bill alleging misconduct by officers and directors and seeking appointment of a receiver to recover diverted assets and complete the winding up; the court appointed a receiver and authorized him to recover unlawfully diverted money and damages. The corporation had no creditors. The receiver then filed suit against the officers and directors using the same solicitor who had represented Jones, and certain defendants moved to dismiss on that basis.

Issue

Whether it was improper for the receiver of a dissolved corporation with no creditors to employ as his solicitor the same lawyer who represented the stockholder whose suit led to the receiver's appointment, when the receiver's action seeks recovery of assets allegedly diverted by officers and directors.

Rule

Although receivers and their counsel ordinarily must be impartial and independent of conflicting claimant groups, that objection does not apply where a dissolved corporation has no creditors, all stockholders share a common interest in a recovery fund, the initiating stockholder claims no preference over other stockholders, and the receiver's suit is merely a continuation or ancillary part of the stockholder's original litigation to recover assets for the corporation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A dissolved seafood-packing corporation in Wilmington, Delaware has no creditors. After stockholder Nina Patel successfully seeks appointment of a liquidating receiver to replace directors and recover assets allegedly diverted by the former officers, the receiver retains Patel's lawyer to file the recovery action.

If the former officers move to dismiss solely because the receiver hired Patel's lawyer, how should the court rule?

Explanation. The majority recognized an exception to the ordinary impartiality rule. Although receivers and their counsel are ordinarily expected to be impartial among conflicting interests, that objection does not apply when the dissolved corporation has no creditors, any recovery will be a common fund for all stockholders, the initiating stockholder seeks no preference, and the receiver's suit is merely a continuation or ancillary part of the original stockholder litigation.