*1 IN THE SUPREME COURT 695 Lоwder v. All Star Mills error; Guilt-Innocence Phase: No vacated,
Sentencing Phase: Death sentence sentence of life imprisonment imposed. LOWDER, LOWDER,
MALCOLM M. MARK T. LOWDER and DEAN A. Plain MILLS, INC., FARMS, INC., v. ALL STAR LOWDER tiffs CAROLINA MILLS, INC., FOODS, INC., HATCHERIES, FEED ALL STAR ALL STAR INC., INDUSTRIES, INC., FARMS, INC., ALL STAR TANGLEWOOD CON INDUSTRIES, INC., AIRGLIDE, INC., SOLIDATED and W. HORACE LOWDER, PECK, and CYNTHIA E. LOWDER W. MICHAEL Defendants LOWDER, LOWDER, HUDSON, Individually DOUGLAS E. L. LOIS and as HUDSON, HUDSON, Guardian ad Litem for STEVE H. E. BRUCE BILLY J. HUDSON, BALLARD, RATTERREE, ELLEN H. JENELL H. DAVID P. LOWDER, HARRELL, JUDITH R. LOWDER EMILY P. LOWDER COR LOWDER, Intervening NELIUS and MYRON E. Defendants
No. 89PA83 (Filed 1983) 6 December 3; Attorneys appointment 1. plaintiffs’ at Law 1— attorney Receivers as counsel for receivers appointment plaintiffs’ attorneys The trial court in erred its as counsel corporate for the receivers of the seven plaintiffs’ defendants since the in- terests are not plaintiffs identical to those of the receivers in that are at- tempting to recover аssets in an undetermined amount for the benefit of two defendants, corporate corporate defendants from the other five and the charged preventing injury property controversy are preserving security parties all the assets for the of all in interest. 7; Attorneys improper 2. appointment attorneys at Law Receivers 12.2— for receivers —allowance of counsel fees Although appoint plaintiffs’ attorneys it was error for the trial court to defendants, counsel for the receivers of the the trial court could properly allow reasonable fees to the for their services tо the receivers under orders of the court. Copeland dissenting part.
Justice
On certiorari
to review the decision of the Court of Appeals,
(1983),
Lowder v. Star Mills *2 for January on 11 1979. The claim This suit was instituted minority by relief in the of an individual action is nature a action. concerns operation shareholders and derivative It the family. the Plaintiffs seek seven owned corporations relief, Horace damages and other that defendant contending authority as of the Lowder has abused his chief executive оfficer defendants, from funds and assets wrongfully diverting into plaintiffs in which an interest corporations two the basically by Horace the five which are owned corporations other Moore, Lowder. Plaintiffs in this action the represented are firm, Raleigh.1 Van Allen and Allen of Charlotte and 1979, February Judge Seay On 5 co-receivers appointed single and defend- operate corporations enjoined the business way. in the interfering receivership any ant Lowder from On 1979, February Seay supplemental receiver- Judge entered Allen Moore and Van to serve as at- ship appointed order torneys the the aрpealed injunction, for the receivers. Defendants order, order. receivership supplemental receivership and reported After review 45 N.C. Appeals, (1980), 348, its S.E. 2d heard appeal, this Court (1981). 561, 273 S.E. 2d opinion reported 301 N.C. being Court, and other affirmed the order among things, receivership authority concerning of the trial to enter orders upheld judge out out district. receivership county and of the further back- Reference to these made for factual opinions this case. ground of court, superior
After the case was remanded to the defend- twenty-five some motions. These included a motion ants filed Moore Allen for appointing vacate the order and Van as counsel receivers, Van disqualified a motion to have Moore and Allen and motions set aside the of: plaintiffs, approval as counsel for gov- of an tax claim the federal outstanding the settlement ernment, assets, which were payments the sale certain services, and the payments the receivers for their awarded attorneys. also the services of their accountants and Defendants filed a motion to recuse the trial judge. January merger, of the firm Moore and Van a 1 name was Prior to
Allen.
Lowder v. All Star Mills Seay On October Judge entered thirty separate orders, settlement, including orders approving tax denying order, the motions to vacate the supplemental receivers, accountants, awarding fees and expenses and at- torneys. The trial court referred the recusal motion to Judge Mills for decision. Judge Mills that Seay found was not re- quired recuse himself. appealed
Defendants seventeen the trial judge’s orders. affirmed trial every court respect (1) two, but finding it was error appoint Moore Van (2) receivers, Allen as it was error to allow *3 counsel fees for Moore Van and Allen for on their services behalf of the receivеrs.
Plaintiffs, defendants, and intervening defendants sought discretionary review of this Appeals Court of decision. On 3 May this plaintiffs’ Court allowed petition for discretionary 7A-31(a). to pursuant review N.C.G.S.
Moore, Allen, Van Allen and John by T. Allred and Randel E. receivers, and Phillips, plaintiffs appellants. for Millette, P.A., DeLaney, DeArmon and McKnight, by Ernest S. DeLaney, appellees. for defendant Tucker, Tucker, C. by & William in- Hopkins, Hopkins for
tervening appellees. defendant MARTIN, Justice. nearly years five in this matter litigation have history a factual
generated procedural and that is voluminous and Details not to we complex. relevant the issues address here are opinion, sеt forth our earlier supra. discretionary have review in this for granted
We case two considering limited raised purpose questions plaintiffs: First, whether erred in that Moore Appeals holding Allen, not serve plaintiffs, and Van as counsel for could as counsel receivers; second, whether the Court of erred that the court could not award fees to Moore trial counsel holding and Allen for their services to the receivers. Van IN THE COURT SUPREME Mills
Lowder v. follow, of Ap- we with the Court agree For reasons plaintiffs’ in appointing that the trial court committed error peals this Defendants’ mo- receivers in action. represent сounsel of Moore authorizing employment order tions vacate the granted. Van Allen counsel for the receivers should have been however, Moore and Van Allen agree, We not that because do they are not place, not have been in the first appointed should ren- for beneficial services payment now entitled reasonable throughout the course this action dered issue, this we reverse the orders of the court. On second under of Appeals. [1] plaintiffs’ Plaintiffs counsel does argue that “the not, in the representation posture of this of the receivers case, create сarefully We reviewed the law conflict of interest.” cases, parties, cited including those receivership, pertinent comprising leading up of facts both and the intricate series very present We conclude that this case does litigation. this placed of interest real and unavoidable conflict simultaneously in this action serving plaintiffs position The interests of plaintiffs, receivers. court-appointed Lowder, intervening Horace corporations, defendant defendant defendants, by upholding Judge are not best served and receivers February of Moore and Van Allen Seay’s appointment is true dеspite We believe this position. troublesome *4 delay result. expense and additional significant already judge the trial This the decision upheld has the litiga- serve during pendency co-receivers to appoint 561, 577, Mills, Inc., 273 S.E. 2d 301 N.C. tion. Lowder (1981). role for analysis the receivers’ proper We our of the begin in the case relevant to the 5 attorneys with a review of details and the subse- February authorizing 1979 order Van Allen as counsel for of Moore and appointment quent receivers. Henry C. to co-receivers Judge Seay
In order assigned his seven stewardship corporations: over Doby, Jr. and John Bahner Foods, Inc., Farms, Inc., Mills, Inc., All All Star Industries, Inc., Inc., Hatcheries, In- All Star Consolidated Star dustries, court, Inc., upon of the By Inc. order and Airglide, receivers, all defend- title to of the qualification Lowder v. All Star Mills real, ants’ property, whether personal, tangible or im- intangible, mediately vested in these receivers. They were ordered to take assets, facilities, possession and offices of the corporate defendants, records, together with all of their correspondence, account, books, books of corporate minute and all other corporate continue, They records. were to manage, operаte and the busi- nesses until further order of the court.
While the trial court found that these companies collectively constituted one integrated business enterprise and directed the such, receivers to continue to operate them as there was evidence before the court that each coporation was a separate entity, with stockholders, separate articles of incorporation, its own set of its creditors, number, own set of its own tax identification and separate state and federal tax returns. Seay found that W. Horace Lowder has at “[defendant
all times material to this suit exercised management sole respon- sibility for the business affairs of all the corporate defendants and has excluded plaintiff and other shareholders of said companies from participation in their management.” The order appointing operating for all seven corporations enjoining defendant Lowder from continued control of their affairs rested on numerous of his findings misconduct set forth in Lowder v. Mills, Inc., supra, receivers,
In the order appointing counsel for the the trial court stated: that, has concluded in the interest of justice, order to minimize professional expenses which will be by the as a
paid corporations result of this receivership, law firm of Van Moore and Allen should be employed day-to- Receivers to render advice to them legal concerning activities, assets, day and the marshalling of pursuit claims against third and for the parties, purpose continu- any ing prosecution this action to the end that assets which should to All Star or belong Mills Lowder Farms are identified, and returned to them. *5 derivatively,
Because plaintiffs bring this action Mills, have interests that are identical to those of All Star result, and Lowder Farms. As the finds as a fact that Court IN THE SUPREME COURT AHv. Star Mills
Lowder from no to them prevent Van Allen has conflict Moore and the representing Receivers. and has length, The has considered this matter at Court Receivers, numerous, with the lengthy
had discussions only that is the viable approach approach has concluded this currently only con- presented. potential to the The problems the flict sees in this is that arrangement Court (except on behalf of all the corporations Receivers act Inc.), Mills, may them though Feed even two of Carolina however, fact, The as a against claims rest. finds actual to that no current conflict exists. If an conflict appears this are directed litigation, parties arise the cоurse of so that it be dealt report the matter with at time. that presence had vigorously opposed
Defendants lawsuit, only in this not as counsel for and Van Allen firm Moore but, as counsel for foremostly, plain- also and facts to the firm’s involvement briefly leading We note the tiffs. case. action, when of this filing shows that prior record from his income tax eva- Lowder was appealing defendant Horace Brown, conviction, he retained the law firm Brown sion Brown III Mr. represented in which Mr. L. Brown. matters R. in this Plain- in his are now involved action. Lowder criminal case Lowder, the manner which the tiff dissatisfied with Malcolm L. conferred R. managеd, were with family companies being this ac- determining matters. In regard bring Brown these Brown, tion, Moore Mr. who associated he retained then complaint plain- The latter firm signed and Van Allen firm. counsel, any con- part firm will receive a the Brown tiffs’ but Moore, Allen Allen. Plaintiffs’ Van fee received tingent was by the individual There being paid plaintiffs. are has M. plaintiff Malcolm before the court evidence in the hourly an and Van Allen on basis pay Moore agreed ar- corporations. This fee recovered from the fees are not event which will increase contingencies “subject in turn rangement the shareholders’ conclusion of due successful upon amounts *6 701 Lowder v. Star Mills action, derivative state court receivership proceedings, bankrupt- cy proceedings and other litigation.” related
The Court of Appeals has rejected defendants’ conflict of in- terest arguments with respect to the firm’s role as counsel for Mills, Inc., 275, 282, plaintiffs. Lowder v. N.C. 300 S.E. 2d (1983). 230, 234 We do not disturb or reconsider that part of its decision here. case,
Against this factual background of the we now review apply the well settled law of receivership determine the two issues before us. harsh, The judicial drastic, creation of is a Mills,
extraordinary Inc., remedy. Lowder v. suрra, 561. order, In interlocutory an custody it takes of a defendant’s prop- erty court, out of his hands. his Upon appointment by the receiver is vested with title all the real and personal property of the defendant corporation. While it does not affect the ex- does, however, istence of the corporation, it powers end the stockholders and They directors. can make no contract bind Clark, corporation after appointment. Law Receivers (3d 1959). ed. See also Golding, Corporate Receivership § (1954). Carolina, North Rev. 149 N.C.L. court, With respect the parties to the suit in which he appointed, creditors and other interested persons, and the property receivership, position of the receiver is that of an officer of may the court. He be considered a “quasi-trustee,” holding legal title and as the possession agent of the court for the beneficial owners. He is appointed not for the benefit of either and does party authority not derive his from either one. The par- ties have no authority over him no right and have to determine liability what may may he or not incur. The receiver is a representative and protector of the interests of creditors and shareholders alike property 65 Am. receivership. (1972). 3, 135, Jur. 2d Receivers 138-140 §§ It is well settled that wherever fiduciary there is a relation- ship, the strictest rule as to impartiality and disinterest is en- forced for the protection beneficiary. of both the trustee and the (Del. 1919). Lofland, v. Cahall A. 769 it Ch. Thus follows that no one ordinarily be receiver appointed personal whose inter- IN THE SUPREME COURT All Star Mills substantially judgment with his would conflict unbiased ests Receivers, Law supra, duties receiver. § *7 selecting holds in impartiality good This same rule of general state- comprehensive is a following counsel for the receiver. The rule: of rule and the reasons the ment the сounsel, 47. and limitations thereof.— employ Sec. To court him to appointing When receiver is directed the a duties, in his discharge counsel to assist him the of it employ duty to an counsel rather independent is the receiver’s select This acting who is for either in the action. party than one if, parties; to the of those protect rights rule is intended therefore, they objection, may employ make no the receiver of his discharge of either to aid him the the solicitor to this practice, . . . But courts are not inclined favor trust. strictly made in faith and good unless the is employment for the manifest reason that parties, with the assent client, cause, duty parties his one of the to the counsel’s may to as impartially his his as performing conflict with duties receiver, all to the who is bound see that creditors counsel alike the time of parties during and interested are treated be seconded in respect and in this should receivership, his efforts his counsel.1 Flower, App. Rep. v. 200. The in this case said: Ill. Heffron possible re should be as far “The counsel of receiver such case partiality. personal temptation to be free from that He should moved from give prejudicial might, passage, him to advice at a critical induce bias which adopted litigants, have consistent of when another course could been one duty complainant’s guard is to his in counsel with the interests of both. times, against persons, all all honorable means. all and terests at be, they engagement him if are allowed in their cannot Faithfulness receiver, disap duty required complainant his action
represent and appellees It one, said that proved. which client would serve? be In that event they discharge presented, is could choose and when a dilemma such seen, clearly no If obligation to the dilemma was from another. themselves act; difficulty, liable to conceal such would so but selfish interest is doubt matter, importance, thing slight temporary or present it as a as a or to necessity by forbidding painful the double decision so the law saves the employment.” 1896). (2d Becker, ed. Corporations Receivers Gluck § implied the above. general rule exception identity plain- of interests between the perfect is a Where there consented, parties receivers or where tiffs and the MiUs Lowder v. 77, Thibaut, may arise.
exception Swenson N.C. Cf. (1979) (counsel denied, allowed S.E. 2d disc. rev. company stockholders in derivative actions represent against after rehabilitation representing company proceedings). A further on the rule exception general elaboration serving for the from as at- prohibits parties torneys to the follows: many brought, particularly present-
There are suits suits contract claim and ing simple asking appointment a receiver of a in which claim is large corporation, plaintiff’s words, object admitted In other the main by defendant. such a suit is the honest and efficient administration of in- assets of the In such a case the real work corporation. the main corporation volved is the assets of the handling *8 issues are as a rule contests between variоus creditors con- cerning priorities rights. added). 115(a) Receivers,
Law (emphasis supra, § rule, clearly applies not its to the case general exception, before us. contrary arguments notwithstanding,
Plaintiffs’ Mills, derivatively that sue on behalf of All Star Inc. and fact Farms, automatically perfect Lowder Inc. does not create “the in this identity plaintiffs of interests” between the and receivers problem. case which would eliminate a conflict interest On case, interests are not identical plaintiffs’ facts of this are, in of the Mills Farms whose interests corporations, those turn, identified with those of the receivers. undetermined amount
Plaintiffs seek to recover assets an of Mills the other five defendants for the benefit corporate from and Farms. receivers, hand, charged on the other are definition controversy and pre-
with to the preventing injury property assets, lite, security parties for the of all pendente all the serving in interest. dif- “this case Appeals, presents
As noted
only one
in which there is
receiverships
than most
picture
ferent
IN THE SUPREME
COURT
Lowder v. All Star Mills
Mills, Inc.,
to be
protected.”
assets
corporation
285,
a real or current
“[T]he
on both sides of an
appear
the same counsel
tolerate
. . .”
v. Ar
adversary
Arrington
even
proceeding,
colorably.
(1893)
170, 179, 21
(emphasis
S.E.
rington,
added).
either
integrity
involves no reflection
the moral
upon
This
human
It is based on the frailties of
the receiver or his counsel.
nature,
upon
of unconscious influences
conduct
and the effects
business,
or
of a
social nature.
professional,
where there are ties
Lofland,
The ultimate end justice between complete so far as accomplish, practicable, end, that on the facts of this it. To this we hold before parties sufficiently to dis- grave of interest there exists a conflict case Moore, for the receivers of Allen and Allen as counsel Van qualify *9 defendants. corporate the seven
[2] We turn of Appeals next errеd in its to the second holding issue before us: whether that because counsel the for legal of their payment wrongfully appointed, had been not authorized. should have been fees 1981, Seay pay- authorized Judge In his order of October rendered Moore and Van Allen for services fees to legal ment May February 1979 to during period $45,985.18, fees, before this are at issue Only totalling 1979. these May accrued since fees which have expenses Court. remain uncompen- but would also not of record any, appear if do allowed to stand. were of the Court ruling sated if the Lowder v. AU Star Mills In their petitions the trial for court authorizаtion to pay professional their for services rendered to corpora- in tions receivership, they receivers noted that were at- firms, taching the original statements received from the law statements, they had examined and that found them to be reasonable. In the October 1981 order approving pay- that, expenses, Seay ment fees and found as facts among other things: orders,
3. In accordance with those the Receivers employed firms these and the firms performed valuable serv- case, ices for the Receivers in representing them in this the corporate representing defendants bеfore the United States Tax Court.
4. These firms rendered statements to the Receivers for work performed them during February, month 1979, for actually services performed during that month on behalf of the Receivers. made the same finding with [He March, May, respect April and 1979.]
5. Those true statements were and accurate reflections of amounts billed for requiring legal services or ac- special skill, counting actually hourly at performed, the normal rates firms, charged expenses and for advanced firms . . . fees, advanced,
6. The amounts billed for and expenses are, circumstances, reasonable, by these firms under all the Receivers, performed and the services were benefit to the corporations, and defendant and their estates. filed, 7. After for these fees had petitions been defendant Lowder,
W. to act purporting Horace de- fendants, petitions corporations filed for relief Bankruptcy As a result those further filings, pro- Court. result, enjoined. Court were As a this ceedings this work per- was unable to rule on these for fees for petitions formed. dismissed, bankruptcy proceedings now been just delay any on longer passing
and there is no reason to *10 for fees. petitions these All Mills
Lowder v. following compen- the court that the There evidence before by court orders Moore and sable services were rendered under at of time issue before period Van Allen the four-month during this Court: had to be taken very receivership, steps
At the outset of the orderly in an man- assume their duties to enable the receivers to the ejected to be from of- intervening ner. defendants had Certain conducting were a sit-in. It fices of the where companies the necessary modifying preliminary became to obtain an order Lowder from injunction prevent interfering defendant Horace with were obstructing Contempt proceedings the receivers. the receivership Lowder’s with compliance instituted sеcure pro- which had order and to obtain records he been ordered possession of required gaining vide. The receivers assistance accounts, lockboxes, mail, and other corporate bank corporate assets. attorneys then rendered immediate assistance
The receivers’ They con- companies. spent the proceedings against the tax Prior time counsel with the tax claims. assisting siderable tax in- had been proceeding the an administrative receivership, Safety Act Occupational against under Health and stituted the counsel, with, by aid of Horace Star Foods dealt without the receivership the in this mat- represented Lowder. against summary ejectment proceeding brought ter and also in a shareholders. at- intervening one of the the receivers inventory records and torneys assisted the They order. been required assets had behalf of the receivers. When Horace fee prepared petitions attorneys advised proceedings, bankruptcy Lowder instituted assisting effect these proceedings, regarding orderly responsibilities transfer of assets them in court. bankruptcy decision upheld has
We note that
to certain
objections
dismiss defendants’
Seay to
attorneys’ аnd ac-
whereby
respective
aspects process
only
we are concerned
Here
countants’
fees were determined.
authorized
properly
the trial court
with the
of whether
question
requested
Allen the amounts
Moore and Van
pay
the receivers to
them
mid-May
forthwith.
February
pay
1979 and
through
*11
Lowder v. All Star Mills
It is not
by
that those
to
disputed
employed
receiver
assist
in the
administration
of a
should understand that
subject
their
is
to
compensation
trial court review and approval.
Carolina,
Wyatt,
See
State Court
in North
Receiverships
17 Wake
(1981).
L.
Forest
Rev. 745
Costs
administration of a receiver-
include,
aliа,
ship
inter
such items as reasonable and
com-
proper
for
pensation
attorney
the receiver’s
for services
require
legal knowledge
and skill and which were
to the
rendered
receiver
for the benefit of the
v. Premo
receivership. King
&
(1963).
Inc.,
701,
King,
N.C.
It is also well settled that court fixing trial order awarding fees to counsel for receivers is appeal. reviewable on Receivers, Law 643. In this supra, state allowance § by counsel fees a receiver court is facie cor- superior prima The will Supreme only rect. alter the same when are excessive, clearly or or on inadequate wrоng based principle. proper standard is what is reasonable and fair. v. King Inc., Hood, Cheshire, Premo Banks King, & Com’r supra; (1937). 103, course, This, 189 S.E. N.C. concerns the issue of how much to award counsel for the receivers.
With
whether
regard
question of
to award fees for
counsel, the
“We have
it
wrote:
held that
was
to appoint
error
Moore and Van Allen as
so we
of the
portions
reverse
those
orders which
Mills, Inc.,
authorized the
of fees to them.” Lowder v.
payment
287,
authority
at
[W]e established, will clearly force the that a receiver principle, his one whose in- employ not be as counsel permitted terests, another, attorney or as for are hostile to person receiver, and the duties of such represented interests and, attorney to know the in that duty it law being behalf, duty accept employment it to decline to was his receiver, on both seeking and his so and act doing interests, fraud, . and the order . . sides with such hostile THE IN SUPREME COURT Mills
Lowder v. receiver must attorney allowing Sutherland fees set aside. be 522, 613, Co., 44 N.E. 161 Ill. v. Great Western Tel
Farwell (1896) added). (emphases *12 rule leads to the of this application An across-the-board lawyer can under no conceivable that “a unalterable conclusion suit to services rendered in the same recover for circumstances International Strong v. interests.” having opposing parties 675, 97, 102, Union, Ill. 55 N.E. Loan & Investment Building, (1899). simplistic interpretation this and adopt rigid We decline to ap- more us. We believe the relevant law in the case before analysis is follows: as propriate is attorney by receiver of an employment
Where the
by
party,
an adverse
by
of his employment
unlawful
reason
compen-
denied a reasonable
not
that reason be
he should
necessary or valuable to
which were
sation for services
receiver,
fidelity
ability.
with the usual
and
when performed
excluded would be for
services
. . . Charges properly
attorney’s
by
profes-
in manner
influenced
rendered
party.
with the adverse
sional connection
(1888)
added).
also
See
(emphasis
v.
Where an allowed, services at least where the fees should not be that attorney’s con- influenced rendered in a manner were compensation Reasonable party. nection with the adverse interest or duties no conflict of made where there is be performed valuable and services rendered were fidelity. added). (1952) also 66 Am. See (emphasis Receivers
75 C.J.S. § (1973). 2d Receivers Jur. § in this matter. interlopers were not Moore and Van Allen They served court. fraud They upon have not committed v. All Mills since 1979 under a appointment. procedural court-ordered The that, history of litigation attorneys this demonstrates receivers, they were on occasion engage constrainеd to ac- tivities and inevitably make decisions which strong objec- elicited tion from both parties. The trial judge was aware from the start of potential —if
not the five danger rights of defendants real — Nevertheless, created representation this dual situation. he found the fees expenses stated the law firm were in- curred while rendering professional services to the receivership in behalf of all the defendant The corporations. supports evidence this trial finding. judge did not abuse his in award- discretion ing counsel fees. We hold therefore that on the facts of this case, the awarding legal order fees to the Mоore Van Allen firm for services rendered as for the receivers should be upheld. decision *13 part;
Affirmed in reversed in part. Justice part. dissenting COPELAND I must I part. dissent do not with the respectfully agree majority the facts a con- opinion holding under there exists Moore, sufficiently flict interest Van Allen grave disqualify and Allen as of the counsel seven Seay defendants. has stuck difficult unflinchingly with this Many matter from its obstacles have thrown in inception. been his I return path. Judge Seay would the matter or some other Stanly County, for further judge assigned hearings ap- propriate as to the conflict interest. findings potential I the order portion opinion approving concur in that Moore, Van Allen and Allen firm for awarding legal fees services for the receivers. rendered