Marcovich v. O'Brien

Indiana Appellate Court · Contracts

ContractsReceivershipCorporationsStockholder interventionreceiverinsolvent corporationstockholderintervention

Facts

After the auditor of state found the Indiana Trust and Savings Bank insolvent, certain banks advanced money through a liquidating arrangement to pay the insolvent bank's creditors and depositors, and later filed claims in the receivership seeking subrogation to depositors' priority. The receiver filed a petition to compromise and adjust those claims, and the court, after hearing evidence, granted the petition; Marcovich, a stockholder, had been allowed to file objections to that compromise, but those objections were overruled. Marcovich then filed an intervening petition alleging he was a stockholder exposed to possible stock assessment liability, attacking the legality of the earlier liquidation arrangement and proposed claim allowances, and asserting that various actions should be brought to recover assets or damages for the corporation. The receiver moved to strike the petition, and the trial court sustained that motion.

Issue

Whether a stockholder of an insolvent corporation already in receivership is entitled to intervene in the receivership proceeding solely because he is a stockholder whose interests may be affected, where the receiver is administering the estate and the petition does not show that the receiver refused to act or was guilty of collusion or fraud.

Rule

When a corporation is in court through a receivership, its stockholders are ordinarily regarded as already before the court through the corporation for purposes of litigation with third parties. A stockholder may act separately only in exceptional circumstances, and in a receivership context intervention is not required absent a showing that the receiver refused to perform his duty, or that collusion or fraud by the receiver misled or was misleading the court to the detriment of those interested in the trust estate. Claims and actions belonging to the corporation are to be maintained and defended by the receiver, who acts as an officer of the court and trustee for creditors and stockholders.

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

Lakefront Community Bank, an Indiana corporation based in Gary, is insolvent and placed in a court-supervised receivership. Nina Patel owns 2% of its stock and files a petition to intervene solely because any shortfall in the estate may increase the likelihood that she will face a statutory stock assessment.

Is Nina entitled to intervene as of right on these facts?

Explanation. The majority rule is that when the corporation is already in court through a receivership, stockholders are ordinarily regarded as already before the court through the corporation. Mere stock ownership, even coupled with possible stock-assessment liability, does not entitle a stockholder to intervene as of right. Intervention becomes necessary only upon a proper showing such as receiver refusal to act, or collusion or fraud misleading the court. (Derived from Marcovich v. O'Brien (n.d.).)